‘Cooperative microfinance has exploded, now it’s the banks’ turn’ – Interview with Nar Bahadur Thapa

Nar Bahadur Thapa likes to give a brutal review of the Nepali economy. Even when interest rates have fallen, credit flow is sluggish. Banks’ bad loans (NPLs) are on the rise. Singhadurbar.com’s Editor-in-Chief Narayan Prasad Poudel spoke about the current economic problems on the television program ‘Bank and Enterprise’:

You worked as the executive director of the high management leadership of Nepal Rastra Bank for a long time. After that, how is the country’s economy? Where is it going? Where and how to get ? You are doing research. You are giving your expressions. You are also engaged in teaching. What is the sorrow of our economy today, especially?

The economy has reached a turning point. Now, if we get it on the right track from this turning point, there is a possibility of rapid progress. But if we remain confused on this point, I see the risk of falling far behind other countries.

What is the probability that the deal will cause an accident plus the probability that it will lead to a glorious path?

I see a 50-50 percent chance. If this is the point where the economy is. Positive thinking, economic reform steps are taken, then the economy will go on a track. That will gain momentum. The momentum will give high economic growth. But now if there is confusion, no reform, if the country indulges in a deceptive policy, the economy will remain confused. Remittances will keep coming. That will not allow the economy to be pushed into a major crisis. But internal explosions will continue. Cooperatives and microfinance have exploded. Now it is the turn of banks. What do we want, if this explosion is happening. May it not reach the banks. That will bring a major crisis.

But negative signs have appeared. We looked at Karnali Development. We looked at Narayani. If you talk to senior bankers today, the NPL is in single digits and ? We are managing it. It has been brought to the point where it is said.

That is a misconception. What is the bad loan ratio, non-performing loan ratio, and NPL in Nepal? Neither the National Bank knows. Nor do the banks themselves know. No one knows. This figure is coming out based on an estimate. The National Bank is publishing it. What is the realistic NPL of Nepal? No effort has been made for that. But what is the good side that is happening? The International Monetary Fund is pressuring to conduct an audit quality review and loan portfolio review, and the National Bank had fixed the date 2-4 months ago. Later, it canceled it.

Again, the National Bank has opened the bid again under pressure because the IMF stopped that installment. If this happens, it will be good for the economy. Now the way to mobilize financial assistance and technical assistance from the relevant bodies will also open. And what is the problem? It will be solved. This will help move the economy forward. The disease cannot be cured by hiding it.

But there will be a risk. Loan Portfolio Review (LPR)After the results came, we had hidden the disease as you said. If everything is exposed, this credibility will be further eroded. If there is a division, who will handle it again. What can be the treatment for this situation? When assessing the risk? ?

There are 2-3 things in this. This type of problem has come up twice. The National Bank had a problem with two government banks after publishing the CB Pass report a long time ago. And when Debendra Prasad Pandey was the Finance Minister, he brought a big package and injected capital and bailed out two banks.

Then in 2057, the KPMG report came out. And again, the net worth of two banks was declared almost technically negative. Then we got through it. Now the government has also injected capital. The National Bank has provided liquidity. If the bad non-performing loans are estimated at 15, 16 percent, we will not have a big problem.

The National Bank should provide the LOL facility that it has. And if there is this problem in private sector banks, then the path of resolution and treatment is that those who can invest capital invest capital. Those who cannot invest capital go for merger. Treatment is done. There is no ‘if and but’. And the path to moving the economy forward opens.

Currently, NPL is very new. Loans are not being disbursed. That problem has not gone away. If this had been a loan, everyone would have felt it. And this loan would have had an impact.

But the country’s economic situation has come to a standstill. It has the largest amount of foreign exchange reserves. We were saying that loans have become expensive. It has reached single digits. Banks are sitting with 6, 7 trillion. But citizens and entrepreneurs are not ready to take loans. The government is also like this. If there is no political goodwill, then there is a government led by the two major political parties of the country. From the outside, this is such a golden opportunity. It seems that the country’s economy will be taken on a glorious path that will make it dynamic. But everything is in stagnation. Why ?

Now in Pus Magh, it is also cold. It is also sunny. You have gone to a place where there is a lot of sunshine. It is comfortable. It has health benefits. You can also bask in the sun. This two-thirds government has been formed. There is a golden opportunity. The warm sun is also shining. The government has started enjoying the sun.

It has started enjoying the narrative that there is a two-thirds majority. If incompetence prevails, the country will not benefit. The government must take action. The government must reform. This is why the common citizen has not been able to benefit from the two-thirds government for so long, and the economy has not been able to benefit.

What are those actions and reforms–So what are they ?

First of all, when the economy is in a liquidity trap, there is more liquidity, there is less interest rate, but no one invests. Because your environment of trust is not in the private sector, morale has fallen. This situation describes the same. When morale has fallen, the government should come forward. The government should implement incentive programs.

In the state of liquidity trap. Some countries have done it. They have also achieved success. In this situation, if the government spends an additional 100 billion to 200 billion, private sector investment can be encouraged. What is the problem with the private sector now? Is it going to pay for the investment made or not? There is a concern. Because of the morale fall.

Therefore, the only tool to raise this fallen morale is for the government to be proactive. What I thought was that this government has the same responsibility as the construction business. It will pay immediately. Government is not perpetual. There are one government after another. The previous government has to be replaced. The one with the rightful successor is the perpetual government. Now it has slowed down. It took time. And its effect is being eroded.

Not even full payment has been made. There are many other development programs. There are many examples of contractors not progressing work due to the Ministry of Finance not releasing funds. There are also big projects. There are also small ones. For that, the Nepal government has 50, 60 billion, 51, 53 billion. It should have taken an oral draft from the National Bank and proceeded with the work. If the government did a work worth 50 million, it would have looked big. Vibration comes.

And the Nepal Rastra Bank Act 2058 has made a legal provision for the Nepal government to take up to 5 percent of the previous year’s revenue from the federal government. Earlier, the government used to practice. Now the government is afraid. If I were the Finance Minister, I would resort to it. I would spend about 50 billion rupees and do things that are visible to the big people.

What has our study shown? The study has shown that when the government spends 1 rupee, it attracts 3 rupees of investment from the private sector. If the government invests 100 billion, the private sector invests 300 billion, which acts as a multiplier. The government also has this knowledge. Despite having knowledge, it is not without a learned economist. The Ministry of Finance has appointed two or three finance secretaries. This kind of bold work is not happening.

But in this, the Nepal Rastra Bank, the economic advisor to the Government of Nepal, which has to bear the burden of morals wherever the economy goes, . It should have had a role too. If we talk about flavor, it has already got flavor now. Where can we find the role of the Rastra Bank?

Of course, the Nepal Rastra Bank is the economic advisor to the Government of Nepal. From time to time, the National Bank has to write a report to the Prime Minister’s Office, Ministry of Finance on certain issues. Sometimes there is a law to give a report. It was also done in the past as per the need. While doing these things, suggestions should be made. And in some cases, the suggestions given by the Ministry of Finance should also be kept in the public domain.

Recently, it seems that this housing issue has been kept in the public domain a little. It has also become ‘too late’. Another thing is that the National Bank should also have the ability to take the Finance Minister into confidence. The Prime Minister should have the ability to take the Prime Minister into confidence. Doing this work will bring good results. Such communication and work done in confidence should also be done.

In some cases, the government should also call the National Bank and call the Governor and get their opinion.

But the government also has a Planning Commission. Which works in a regular structure. It tells the government to do this and build the country. The constitution itself has appointed the National Bank as an advisor by law. Without taking advice through it, they have set a time limit of 6, and formed another commission after setting a time limit of 7 months, right? ?

Yes, this is the problem. The government is not recognizing itself. The state mechanism is there. The mechanism is developed. It is a judicial system. There is a parliament. There are various national banks of the government. There are various bodies. In the first phase, wherever the problem arose, it should have been solved according to the legal system. We try to solve the problem outside of politeness.

We try to solve the problem through the cabinet. And we do not move forward according to this constitutional system. What happens in that process? Then the people who are in such and such positions. Will be demoralized. The government does not accept the suggestions I have given. That is also creating a situation of discouragement.

So what do you think now? Then the state machinery should have been mobilized, but it has been demobilized and immobilized. The entire state machinery too. The local level has also been demoralized and immobilized. The activities of the provincial governments are also not that good.

No minister has taken the initiative to do good work, no minister from any ministry has taken the initiative to do good work for the benefit of the Nepali people. This situation is unfortunate. It is unfortunate.

This is in your economic language ‘Way to state failure’ ?

This kind of situation has been prolonged. It is called a policy polarization. If there is a situation of policy paralysis, it acts as a fatal one. It works to maintain the deadlock. Therefore, the economy must be freed from this policy paralysis.

If we are to give it momentum. It almost seems like Nepal is in a state of policy paralysis, in a sluggish, sluggish state of mind. Because any minister, any ministry, any ministry secretary should be a champion of reform.

There should be a competition of 8, 10 people. Not by an outsider. He should make suggestions. But the minister is the one who takes the leadership. The secretary is the one. The heads of various bodies are the heads of various bodies, including the Rastra Bank. They are competent authorities. They are persons recognized by law, institutions that have given them authority. Their initiative is meaningful.

There is also a financial plan. There is machinery. The suggestions given by a person who is working in civil society, who is working somewhere, are only suggestions.

But unfortunately, those who should have been on the front line and taking initiation. They are not trusting their structure. The people who are taking action on the front line of the structure are being demoralized.

Immobilization is happening. What is our effort? Mobilization. Mobilization. It seems that we have stopped something. So one of the reasons why the economy is not doing well is that the state apparatus, which should be organized, motivated, and self-confident, has also reached a state where you have lost your self-confidence, have reached a state of destinationlessness, have reached a state of duty, have reached a state of immobilization, have reached a state of being imprisoned.

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## ## ## But even the government in such a comfortable position could not energize the economy. That is to say, we have to fear that very bad days are approaching, right? ##

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## Of course. One is the situation of LDC graduation. In 2026, Nepal is being upgraded from a highly developed country to a developing country. This is a good thing. It is a matter of conception. But if it is not carried forward in the right way, it can backfire. It has already backfired.

## Some countries have stopped giving grants in the name of Nepal being LDC graduation. Grants have almost dropped to zero. So far, Nepal has developed as much as it has. It has been in terms of grants. All are government institutions. Be it teaching. Be it civil hospitals. Be it Kanti Children’s Hospital. Be it educational institutions.

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## All are being built from grants. Sudden sudden stop is called. When there is a subsidy, the state is in a state of resourcelessness. Direct foreign investment was not mobilized in this. Foreign loans were not mobilized in this context. If concessional loans are not mobilized, the risk of the economy returning to the Rana era has increased.

During the Rana era, some Ranas were good. The citizens of all 75, 77 districts close to them were also fine. There was development. The common citizen had nothing. Now the political leadership has no problem. There is no economic problem either. What should we eat in the morning and evening? What should we wear? There is no problem of what to wear. They are fine. And if the economy reaches a standstill, that is a danger.

The grand was stopped as soon as the LDC graduation process started. If we say that internal resources are the source of development here, then the revenue to pay salaries is not being raised either. The government is taking up internal debt by rescheduling it at a high cost. Its burden is also increasing. 24, It was said that the internal debt of 2500 has reached. The risks are so many.

Yes. What do I think? Then this debt is not a big issue. Foreign debt is a source. It is a big weapon. This is not an issue. An issue arises when foreign loans are not utilized properly. They cannot yield returns. For example, the Bheri Babai diversion. It has been 5 years since the Bheri Babai tunnel was broken through. The breakthrough was made in 2076 BS. Now it is 2081 BS.

The government has not been able to build a dam for 5 years. It has not been able to build a power house. 50, 60 billion has been spent. Its installments have to be paid. Interest has to be paid. But it has not produced electricity in agriculture. If it had increased, the debt to GDP ratio would not have been 43 percent.

If debt increases and GDP does not increase as a result, even small debts increase in large ratios. So what should have been the government’s strategy? Then implement projects that will yield returns as soon as possible. So that there is an immediate GDP impact and this debt, whether domestic or foreign, does not become burdensome.

But we were able to see Pokhara Airport and Bhairahawa, which we built quickly. They were also not able to give returns. They became like white elephants. Yes. Now the strategy is not suitable for us. Pokhara and Bhairahawa should have been operated. Now there is political intention. In 2016, there was a slight disagreement between China and India. That was unfortunate for Nepal. If it had not happened, these two airports of ours would have been running.

And Chinese investment would have come in hydropower.. It would have come in… Just as Nepal became self-reliant in cement, now Nepal could have become self-reliant in energy. From Kartik to Asar, there is a situation where 5,600 electricity has to be imported from India every month, even if Nepal has a comparative advantage in hydropower, this situation would not have arisen.

Just as Nepal became self-sufficient in cement. It reached the point of export. Similarly, it was self-sufficient in hydropower.

You said that we have reached the stage of exporting, but did we make more investment than necessary? That is why now the industry is not running at 10,##20 percent capacity. And the banks that have invested have also reached a point where they are called “haters”. We are not going to look here either, are we? After saying that everything is fine here, we will take everything and pour it in ?

Wrong. This is a possibility. The projects of national pride that have been announced. They demand more and more construction materials. Just because there is a standstill in the economy now, it does not mean that the Nepali economy will remain in a state of stagnation forever. Maybe 2, 4 years. After the new generation comes, new youth, new people come, the economy will gain momentum. The country does not always remain in this statement.

Therefore, capacity has been created. When the opportunity arises tomorrow, it will be utilized. That is why the situation in cement is not good at the moment. It is said that there is no demand. We made a mistake in that. We should not have done it. There is no reason to feel guilty. Setbacks do happen. Development is not in a straight line. It goes up and down. Patience is also needed. And if we continue to reform in a state of impasse, that impasse will be small.

We are moving towards making progress as quickly as possible. But if the deadlock is not taken as a situation, then if the deadlock is prolonged, it will cause great harm. Time is powerful. There is also a situation where time is changing. Therefore, the cement works that have been done, the capacity that has been built.

should be taken positively. We should not give a negative message. The same was said yesterday in hydropower. It is said today as well. But in hydropower, we still have to import from India for 8 months. Therefore, investment on a continuous basis is also a comparative advantage in cement.

Hydropower is also. When we first introduced you, we explored you as a researcher in banking economics along with the former ED of Nepal Rastra Bank.

What more do we expect from you? If our average GDP growth is 4, , it has not gone above 5 percent except in exceptional cases. Banks and financial institutions regulated by the National Bank are lending to the private sector on such a large scale. The Ministry of Finance, some time ago, when the current Honorable Finance Minister came, the bureaucratic structure there had given some 16, 17-point suggestions. Private sector lending did not make a proper contribution to GDP growth. We are at a place where we need to rethink. It was said. Where are you standing and how are you looking at this? ?

Development is also a package. A development package should be prepared on the basis of the package. Is it India, Nepal, or China? In countries where there has been high economic growth, the public sector has become proactive. Even now, India scholars have been arguing that India’s economic growth of 7.8% is due to public sector investment.

And the same is true of China. Therefore, the capital formation ratio of the public sector is now 35.37 percent. And 35 percent is from the private sector. However, the private sector says 80 percent. If we take the 16th Plan as a basis, 35 percent of capital formation is being done by the government and 65 percent by the private sector, including cooperatives.

This 35 percent is public sector investment. It is to make it a little dynamic. If we reorient it a little, it will encourage 65 percent private investment. It will double or triple it. That is why if this does not happen, then the best private sector is in America. America does not have an economic growth rate of more than 2, 3 percent. Because there is no government investment.

Investment has been made in infrastructure. Europe also has a better private sector than Nepal. Japan has a better private sector than Nepal. What kind of cars are they producing and exporting globally? There is no public sector investment there right now. Because there is no work left. Therefore, there is a need to increase public sector investment in Nepal for a few years, 20, 25 years.

It is the public sector. If the private sector does not move forward, there will be no economic growth. Therefore, there is a need for both the private sector and the public sector to work together in Nepal. Even if the private sector adopts the strategy of economic growth, if the public sector is reduced to zero, we will not be able to achieve an economic growth rate above 2-3 percent.

In our economy, this house– We did not get the expected growth due to the dependence on land prices. What is your answer to those who argue that ?

The private sector cannot develop by cutting off the supply. The economy cannot gain momentum. If the liquidity in banks and financial institutions is poured into real estate alone, a price bubble will occur. The country cannot develop. If the secondary market of the stock market is made more dynamic than necessary, the possibility of a crash will increase.

So, what is the need? Then there is a need in Nepal to mobilize as many resources as possible in production-oriented sectors.

But when will the economy be dynamic ? The two words that come to everyone’s lips are , ##The real estate and stock markets must be dynamic. This has been established.

##This is a wrong narrative. This wrong narrative is the reason why there is no economic development in Nepal. We must get rid of this narrative. This is not a well-established narrative. The narrative that does not exist anywhere else is that by bringing painkillers to Nepal, the disease will be cured. This is a painkiller.

Today is not tomorrow. Therefore, this kind of commentary, this kind of strategy and development policy does not help in poverty reduction. And it does not help in creating employment opportunities. It does not help in high economic growth. It does not help in capital formation, capital creation.

But even when we hear industrialists saying that they will invest, we do not know whether they will make money by running the industry. Banks do not believe in loans just by looking at the project. They do not believe in our skills alone. There is a mentality that there are two or four bighas of land. Let’s try to build something there. Let’s take a loan by mortgage it. The industry will run. Otherwise, we will earn by selling the land. Since banks are not giving loans without collateral, its price is said to be a bubble. ?

Yes. Now this country has gone into regulatory capture. There is a situation where a few limited individuals are using the state’s policies and regulations for their own interests. This does not mean that the private sector should not develop. The private sector should develop. Economic discipline is very necessary for the development of the private sector. The economy needs to be brought back on track.

Now it is a move to enjoy the situation without policies and regulations. It is a move to increase the situation. Discipline is indispensable for the development of the economy and an individual. The challenges and opportunities that arise from it have to be faced. What is the problem of Nepal now? There was no development of sectors other than those with comparative advantage.

Tourism was not developed. Hydropower was not developed. The government of Nepal is not providing the services that should be provided to the development of the private sector. The private sector is not even being able to provide infrastructure.

Even if we say we will export, we will bring palm oil from the fields, , pretend to process it, , and take it back again. We will also receive incentives. Exports of two, four billion rupees will be a source of pride. Yes. Data is coming in for five months now. Foreign trade. Ah…. Foreign trade has indicated that the economy has recovered. The narrative that it has returned to balance is developing again. Why did this happen? Then India increased the customs duty on edible oil to protect its farmers. Palm oil became expensive in India. And when Nepali traders imported from Indonesia, Malaysia, and Brazil and exported a little to India, imports also increased. Exports also increased. And the volume of international trade increased. This plant is like ghee. But we should not fall for this kind of pseudo-deceptive strategy. Therefore, the Nepali economy is in a state of capture, which is called regulatory capture.