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Amid the precarious economic outlook of the country, growing fiscal imbalance, rising bank default cases, and threats to the banking sector, Prime Minister Pushpa Kamal Dahal on Sunday sat down with the representatives of the private sector for the first time after he took charge of the Singha Durbar. The Prime Minister, who is also overseeing the Finance Ministry, discussed the problems in the economy and banking sector with the private sector representatives and senior government officials at his office in Singha Durbar. During the interaction, Dahal discussed the issues related to bank interest rates, microfinance problems, concerns of the private sector, and the attempts to create financial disorder in the country. During the meeting, Dahal said that the government has taken recent incidents to cause financial disorder seriously and is taking initiatives to resolve the problems in the banking and financial sector. "The government is worried about the current situation," a government official who participated in the meeting quoted the prime minister. "After discussions with the stakeholders, the government will move quickly and take concrete decisions." "The government is serious about resolving the challenges of the economy. I am aware and aware of people's complaints in the field of banks and microfinance," said Dahal. Seeking suggestions from the private sector, he further said that a high-level commission may have to be formed to resolve the problems. However, Sunday's discussion ended without a concrete decision. The Prime Minister came late to the meeting by an hour. While the meeting was called for 12.30 pm, Dahal reached only at 1.30 pm. "As the Prime Minister has another program to attend, the meeting lasted for one hour only," said a businessperson who attended the meeting. According to him, the representatives of the private sector put forward their concerns. According to Rajendra Malla, President of Nepal Chamber of Commerce (NCC), the private sector demanded a reduction in the bank's interest rate. "We have requested the Prime Minister to reduce the interest rate and premium rate of banks," he said. During the interaction, Nepal Rastra Bank Governor Maha Prasad Adhikari briefed the latest situation of the country's economy. Adhikari reported that the economy is in recovery mode following improvement in the country's external sector. Shekhar Golchha, President of Federation of Nepalese Chambers of Commerce and Industries (FNCCI) touched on the issues of banks' higher interest rates as well as rising non-performing loans. Vishnu Kumar Agrawal, president of the Confederation of Nepalese Industries (CNI) demanded the early appointment of the finance minister. Agrawal was of the view that the new finance minister should be a technocrat who understands the economy well. Nepal Bankers' Association President Sunil KC drew the PM's attention to recent anti-bank agitation by a vested interest group.

In recent weeks, the plights of borrowers of microfinance institutions (MFIs) have made numerous headlines. Particularly those who had availed loans from multiple MFIs have suffered badly after failing to repay the loans amid business losses and a decline in income due to the Covid-19 pandemic and economic slowdown in the country. But banks and financial institutions (BFIs) are now concerned about whether the cases of willful defaults will rise following the campaign launched by controversial businessman Durga Prasain against repaying the loans. Besides political demands for the restoration of the monarchy and Hindu nation status, Prasain has been demanding that the BFIs should waive loans up to Rs 2 million and reduce the interest rates. Bankers say with the slowdown in business activities, rising inflation, and high-interest rates, borrowers' ability to repay the loans has weakened and this has led to a surge in the number of 'blacklisting' of the people by banks and government authorities who are unable to repay the loans. According to bankers, due to the drastic slowdown in the real estate market, banks are not able to recover loans easily even through auctioning the real estate properties. "Small and medium enterprises, agricultural enterprises, hotels and tourism firms, schools/colleges, and companies in the construction sector are unable to repay their debts," said a banker. Prasain's campaign has alarmed the bankers. Issuing a joint statement on March 2, Nepal Bankers’ Association, Development Bankers Association Nepal, Nepal Financial Institutions Association, and Nepal Microfinance Bankers’ Association drew the government's attention amid threats and manhandling of the staff of BFIs by unidentified people. The associations said that calling not to repay loans and inciting violence will invite anarchy which would not benefit anyone in the country. According to them, it will further complicate the situation and affect economic activities. "It is the responsibility of borrowers to repay the principal amounts and interest of the loans they've availed. It is anarchy to refuse to settle the financial liabilities," reads a joint press release issued by the umbrella organizations of the BFIs. According to a senior official at the Nepal Rastra Bank, Prasain’s campaign could cause some of his followers to default on the loans. “But the ultimate victims of following such a campaign will be those who fail to repay the loans regularly,” the official said. “BFIs will recover their loans anyway because almost all the loans in the country have been provided against the collateral.” The NRB official claimed that Prasain has been making an effort to make his campaign a springboard to elevate his political ambitions but his followers who will be inspired not to pay the loans would suffer finally. “It may take some time to recover the loans, but BFIs will definitely recover the debts,” he said. While the debt default rate in Nepal is relatively low so far but the worrying sign is, the rise in the non-performing loans (NPLs) of the banks. As of mid-January, the NPLs of commercial banks stood at 2.54 percent while development banks' NPLs stood at 2.47 percent and finance companies at 5.79 percent. “NPL level of banks in Nepal is relatively lower compared to their South Asian peers,” the NRB official said. But the quality of loans has become a concern for the central bank as well as international agencies like the International Monetary Fund (IMF). The IMF’s Article IV consultation mission which concluded its visit last month has stated in its initial observation report that bank asset quality in Nepal has deteriorated, reflecting a decline in the repayment capacity of borrowers due to higher lending rates and rising leverage, a concern that is moderated by banks’ capital-adequacy ratios that are above the regulatory minima. “The discussions recognized the need for the Nepal Rastra Bank to ensure appropriate reclassification of loans and close monitoring of the impact of a potential deterioration in repayment capacity of borrowers,” the IMF said. Continuing to advance reforms on banking regulations and supervision and ensuring bank asset quality, and further strengthening NRB’s governance by amending the NRB Act in line with best international practices are the commitments Nepal made to the IMF to receive funding under the Extended Credit Facility (ECF). As international agencies like the IMF have been warning about the quality of the loans, the central bank is concerned that the campaign run by Prasain can cause an increase in debt defaults further. How the defaults affect the bank can be gauged from painful rehabilitation measures taken to rescue Rastriya Banijya Bank and Nepal Bank in the early 2000s. The credit rating agency ICRA Nepal in its recent report has also pointed out a looming challenge to the Nepali banking sector. "While the rise in NPAs during the first half of the financial year can be partly attributed to the industry seasonality, the ongoing challenges led by increased interest rates, erosion in the credit profile of the borrowers as discussed in earlier sections, the inability of the banks to extend credit facilities under a new regulatory regime, etc have exacerbated the liquidity concerns and weakened the debt-servicing ability of the borrowers; which could continue the pressure on banking sector asset quality going forward," reads the report. According to the report, the probable deterioration in asset quality of banks in subsequent quarters could result in the need for recapitalization, given the moderate capital cushion of many banks. “However, the ability of the banks to recapitalize through equity issuance could remain a challenge given the weak to moderate profitability outlook for the banking sector," states the report.  

The Nepal Stock Exchange (NEPSE) plunged by 30. 77 points to close at 1,938.25 points on Sunday. Similarly, the sensitive index dropped by 4. 86 points to close at 368. 70 points. A total of 3,832,459 unit shares of 259 companies were traded for Rs 1. 39 billion. Meanwhile, Super Madi Hydropower Limited was the top gainer today with its price surging by 10. 00 percent. Likewise, Samling Power Company Limited was the top loser with its price dropped by 10. 00 percent. At the end of the day, the total market capitalization stood at Rs 2. 80 trillion.

The price of gold has increased by Rs 300 per tola in the domestic market on Sunday. According to the Federation of Nepal Gold and Silver Dealers’ Association, the precious yellow metal is being traded at Rs 102, 800 per tola today. The gold was traded at Rs 102, 300 per tola on Friday. Meanwhile, tejabi gold is being traded at Rs 102, 300 per tola. It was traded at Rs 102, 000 per tola. Similarly, the price of silver has increased by Rs 10 and is being traded at Rs 1,275 per tola today.