In Nepal’s fragile and evolving economic landscape, commercial banks stand as pillars of financial stability—but increasingly, their role must grow beyond transactional boundaries. Amid shrinking public revenue, payment bottlenecks, and project paralysis, banks are uniquely positioned to serve not just as creditors, but as custodians of national development. The consequences of passive banking behavior in this climate are no longer theoretical—they’re tragic.
Nowhere is this crisis more visible than in the construction sector, one of Nepal’s largest employment generators. Contractors typically sign project agreements based on payment milestones. To begin work, they borrow short-term loans from banks, invest in materials and labor, and submit interim bills reflecting progress. However, when government employers delay payments—a problem that has grown more frequent in recent years—contractors are left financially stranded. Their liabilities to banks continue to grow, while receivables remain frozen, locked behind bureaucratic inefficiencies.
A Systemic Breakdown Unfolds
This mismatch between payment timelines and financial liabilities creates a dangerous imbalance. Despite fulfilling contractual obligations, many contractors face escalating interest, penal charges, and limited options for restructuring. The problem is not mismanagement—it is institutional lag. Banks continue to capitalize interest on delayed loans, while employers postpone bills due to budget shortfalls. The result is a systemic chokehold on companies that were, until recently, sound and stable.
Even monetary policy remedies—such as bank-initiated restructuring or conditional extensions from employers—have proven inadequate. They often require surrendering rights to compensation, further exposing contractors to irreversible loss.
To make matters worse, the recent introduction of dishonored checks as grounds for public prosecution has deepened fear across the sector. While such a regulation may be intended to promote financial discipline, it disproportionately punishes small contractors affected by sovereign delays. These individuals often issue checks anticipating payment—but when government bills remain unpaid, the checks bounce. The new law criminalizes those caught in delay-induced distress rather than shielding them from it.
Meanwhile, larger players with access to political leverage or institutional leniency continue to bend the system in their favor. Small businesses, already starved for cash flow, now face the threat of imprisonment for financial delays that aren’t their fault. The result is a regulatory framework that protects the privileged while punishing the vulnerable.
Declining Public Revenue: A Root Cause
Nepal’s shrinking public revenue underpins this crisis:
In fiscal year 2022/23, revenue declined by over 9.6% from the prior year, reaching only 68.2% of the government’s target.
In 2023/24, revenue improved marginally but still met just 74.3% of its revised target—even after two budget cuts.
This marks four consecutive years of budget shrinkage—a record since 1967/68.
Import restrictions, liquidity stress, and chronic underutilization of capital budgets have stifled development and slashed tax inflows. Contractors—dependent on payments for completed government projects—are directly impacted. Ministries delay disbursements due to low treasury capacity, choking companies that have already delivered work on site.
Lending slows as banks focus on recovery of loans at fiscal yea...
A Crisis of Survival: Tragedies Already Unfolding
This institutional breakdown has triggered a mental health emergency among contractors. Several suicide cases have already been reported—individuals overwhelmed by debt, broken promises, and the social stigma of financial failure. More such tragedies are sadly anticipated if no relief mechanism is introduced.
These deaths are not isolated events; they reflect a national failure to recognize that sovereign delay is a crisis of humanity, not just money. Behind every dishonored check and unpaid bill is a household on the verge of collapse. Workers remain unpaid, projects stall, and the dignity of honest work evaporates.
Banking with Empathy: A Responsible Enablement Framework
Commercial banks must expand their mandate beyond repayment enforcement. A Responsible Enablement Framework would allow them to:
Tie financing to verified progress, not just calendar deadlines—ensuring liquidity for contractors actively working on site.
Route sovereign payments through bank channels, automatically offsetting loan exposure and ensuring timely settlements.
Suspend or recalibrate interest accrual when delays stem from government entities.
Form tripartite agreements between banks, contractors, and government agencies—ensuring accountability, transparency, and protection.
These reforms would not only rescue businesses but safeguard national infrastructure, labor continuity, and economic momentum.
Lessons from History: Germany's Recovery Blueprint
During the Great Depression, Germany launched massive public spending and enabled banks to finance contractors directly. Payments were routed via banks, interest rates were adjusted based on sovereign delay, and businesses were protected from collapse.
The result wasn’t just economic recovery—it was social revival. Nepal can learn from this legacy and frame its own ethical banking model.
A Nepali Model for Reform
Nepal Rastra Bank could guide commercial banks to:
Recognize sovereign delays as valid restructuring grounds,
Establish receivable-backed bridge financing,
Incentivize banks that partner ethically with distressed businesses,
Protect small entrepreneurs from criminalization due to delayed payments.
Preserving Progress Means Preserving Lives
Saving struggling yet capable businesses—especially those employing thousands—is an act of national preservation. Every contractor rescued means continued work, continued wages, and continued development. When banks partner ethically, they protect more than their loan books—they protect families, dignity, and the momentum of national progress.
Banking Sector: A Strategic Lever for Nation Building
Nepal’s evolving economic landscape, marked by pressures in construction, energy, and employment ecosystems, reveals both the fragility and potential of its financial architecture. The banking sector, confronted by rising distress among contractors and project stakeholders, stands at a historic inflection point: will it remain a passive creditor—or will it actively participate in rebuilding momentum for national development?
Policy advocacy must now center on banking institutions as developmental stakeholders. Commercial banks, guided by prudential norms, have the capacity to go beyond compliance—engaging in responsive refinancing, restructuring, and ethical intervention to stabilize vital infrastructure initiatives. This requires a shift in regulatory posture: one that encourages responsible flexibility, prioritizes project continuity, and aligns risk frameworks with nation-building imperatives.
Transformative policy must incentivize such adaptive banking behavior. Whether through revised credit classifications, fiscal backstops, or strategic partnerships with government development programs, banking reforms can redefine what it means to serve the national interest.
By embracing both challenge and opportunity, the banking sector can evolve from gatekeeper to enabler—turning short-term risks into long-term resilience.
Ethos of Action: The Price of Inaction—From Boardrooms to Courtrooms
In moments of national fragility, neutrality becomes complicity. For Nepal’s commercial banks, the choice to remain rigid in the face of sovereign delay is not just ethically questionable—it is strategically unsound. The risk profile they ignore today may well evolve into the reputational liability they cannot explain tomorrow.
We must ask: will banks secure their returns from boardroom strategies—or defend their losses in courtrooms?
Boardrooms are built on proactive foresight. They reward institutions that preempt risk, adapt policy, and invest in systemic stability. Compassionate finance—in the form of receivable-backed support, interest relief during validated delays, and tripartite transparency—is not weakness. It is governance.
Courtrooms are the consequence of indifference. Banks that penalize responsible contractors trapped in sovereign bottlenecks risk lawsuits, media scrutiny, and long-term reputational harm. Criminalizing distress born of national delay is not just unjust—it’s indefensible in the eyes of the public and policy.
Contractors are the arteries of infrastructure delivery. To disregard their distress is to deny the foundational truth: Nepal’s growth flows through them. Their collapse would choke not only project completion, but the very liquidity that fuels the banking sector.
Empathy is strategic. It calibrates risk, preserves dignity, and protects shareholder interests from the contagion of systemic failure. Policy-aligned reform is not charity—it is how responsible banks turn potential liabilities into legacy.
The time to act is now—not when audits expose preventable defaults or when headlines question institutional ethics. Nepal’s banks can choose to be architects of recovery rather than archivists of regret. That choice begins in boardrooms—and must never end in courtrooms.
Conclusion: A Call to Conscience
Nepal’s economic future depends not just on policy or capital—but on empathy in finance. Commercial banks must move from procedural rigidity to conscious partnership. If the system continues to punish the vulnerable while rewarding the mighty, we will not just lose businesses—we will lose people.
Saving businesses isn’t charity—it’s structural wisdom. And every life spared from collapse is a national achievement.
