Kathmandu- Nepal Bankers' Association (NBA) President Santosh Koirala has urged the upcoming monetary policy to introduce greater regulatory flexibility and practical reforms to help the banking sector navigate current challenges. He said reforms are needed in areas including non performing asset (NPA) classification, the Asset Management Company (AMC), base rate calculation, risk based pricing, and several regulatory provisions.

Speaking at an interaction organised by SEJON, Koirala said banks have mobilised deposits exceeding Rs 8 trillion and extended loans worth around Rs 5.9 trillion. While acknowledging that regulation is essential for financial stability, he said the current situation requires certain policy relaxations.

"The monetary policy must address several issues in the current environment. It is time to provide some breathing space to both banks and borrowers," he said.

Koirala said revising the NPA classification framework is the Bankers' Association's top priority. He noted that although Nepal Rastra Bank had previously formed a committee to study the issue and prepare recommendations, they have yet to be implemented.

According to him, the current provisioning framework requires banks to make higher provisions as soon as a loan begins to deteriorate, placing immediate pressure on borrowers. This has created unnecessary strain for both banks and borrowers, he said.

He also highlighted the establishment of an Asset Management Company as another key reform. Referring to the government's commitment to establish the AMC by mid January, he expressed confidence that it would provide some relief in managing distressed loans.

"An AMC will not solve every problem, but it will certainly help improve NPA management," he said.

Koirala argued that the current base rate calculation methodology has squeezed banks' profitability. He said banks should be able to earn reasonable returns while maintaining strong governance and regulatory compliance.

He also said that although Nepal has adopted a risk based pricing framework, banks still have limited flexibility in determining lending premiums. In addition, he called for a review of the strict regulations governing fees and commissions.

"Fees and commissions should largely be determined by the market. Given the current economic situation, the monetary policy should provide greater flexibility to the financial sector," he said.

Koirala also called for reforms to the Capital Redemption Reserve and Debenture Redemption Reserve provisions. He said the existing requirement to allocate significant amounts to redemption reserves despite low distributable profits has put pressure on banks' capital management.

Citing India's regulatory practice, where commercial banks are not required to maintain a Debenture Redemption Reserve, he urged Nepal to allow banks to use such reserves for issuing bonus shares.

He also recommended increasing the Non Deliverable Forward (NDF) limit from 30 percent to 40 percent, ensuring full interoperability of QR payment systems, developing a secondary market for government bonds, and creating a common platform to combat digital fraud.

In addition, he called for the use of alternative digital channels to reduce the high cost of SMS notifications, the implementation of a centralised Know Your Customer (KYC) system, and permission for branch consolidation in municipalities as well as metropolitan cities.

Koirala expressed confidence that Nepal Rastra Bank would address the recommendations submitted by the Nepal Bankers' Association in the upcoming monetary policy, saying the proposed reforms would not only provide relief to the banking sector but also support broader economic activity.