Karki-led Gen Z probe panel flags banking sector anomalies, urges reforms

KATHMANDU, March 27: The high-level commission led by Gauri Bahadur Karki, tasked with investigating the September 8–9 incidents, has raised the alarm over persisting anomalies in Nepal’s Banking and Financial Institutions (BFIs) and called for stricter vigilance to safeguard the country’s financial stability.

Unveiling its report on Wednesday, the commission highlighted rising non-performing loans, mounting bad debt, and the growing accumulation of non-banking assets as key stress points in the country’s financial sector.

To address these challenges, the commission recommended closer coordination between local and police administrations, amendments to the Banking Offences Act and the Banks and Financial Institutions Act, stricter monitoring of money laundering, and vigilance against the spread of misleading information.

The report also critiqued current practices in handling banking offenses, where accused individuals are often penalized before thorough investigations are completed. “The existing Banking Offences Act should be comprehensively amended to ensure that no innocent person is wronged, no guilty individual is acquitted, and convictions are based solely on adequate evidence,” the report states.

The fallout from the Gen Z movement, the commission noted, directly affected 873 borrowers of BFIs, who collectively lost around Rs 37 billion in their businesses. Closures, transportation disruptions, and reduced production and sales weakened cash flows, leading to missed loan repayments and growing non-performing loans.

Particularly hard-hit were small and medium-sized enterprises, hotels, tourism, construction, and transportation sectors. The resulting strain on BFIs has intensified the challenge of loan recovery while creating pressure from liquidity accumulation. “The risk of economic stagnation is rising due to the lack of money circulation in the market,” the report warns.

The commission urged strengthening the banking sector to support sustainable economic growth. It also flagged potential risks arising from the current low interest rates on deposits, which could prompt capital flight if left unchecked.

In addition, the report called on Nepal Rastra Bank to accelerate digital banking initiatives and enhance monitoring of significant digital transactions through Payment Service Providers (PSPs) and Payment System Operators (PSOs). Strengthening these systems is vital to ensuring secure financial transactions.

Finally, the commission emphasized the importance of mobilizing remittances through legal channels and minimizing illegal hundi transactions, highlighting the need for structural reforms to safeguard the integrity of the country’s financial system.