Book Review (Spotlight Weekly)

Corporate Governance and Financial Sector
Reform in Nepal
By: Dr. Tilak Rawal
Published by: Society for International Development, Nepal
Price: Undisclosed
Pages: 56

Book

On Financial Sector Reforms

Dr. Tilak Rawal, governor of the Nepal Rastra Bank, highlights the process of financial reforms in Nepal

By A CORRESPONDENT

In the last one and a half decade, the country has made tremendous efforts to transform financial sectors inviting private sector as well as foreign investment. Thanks to the new policy, new financial institutions have emerged in the private sector and with the foreign investment.

Following the restoration of multi-party democracy in 1990, the reform process continued to be a part and parcel of the policy of all the governments. Almost all previous and present government has taken up the financial reform as a main agenda.

In the last four decades, Nepal’s two largest public sector financial institutions have landed in major financial trouble. Thanks to the bad loans and overstaffing, they were unable to compete in the new environment. The health of other public sector financial institutions including Nepal Industrial Development Bank also faced similar situation.

After taking up the charge as the governor of Nepal Rastra Bank, Nepal’s central bank, Dr. Rawal has pushed the reform process in the banking sector. Although it was one of the most challenging tasks, governor Dr. Rawal has been capable in carrying out the reform measures.

In the book, Dr. Rawal discusses, at length, the challenges and opportunities thrown open by the process of financial sector reforms. Dr. Rawal clearly stresses on what needs to be done to make the financial sector reform more effective.

The book focuses mainly on the issues of corporate governance and financial reform activities implemented by the government in strengthening the financial sector in Nepal. The book begins with historical background of financial sector growth in Nepal and discusses the performance of commercial banks in brief.

It also makes an attempt to discuss problems and challenges faced by the banking sector and the various reform measures, including corporate governance issues.

“The progress made so far appears satisfactory, although there is a long way ahead. This paper has listed the work that has been accomplished. No doubt, the success achieved so far is just a beginning, and the way ahead is more challenging, which calls for support from all concerned bodies,” writes Dr. Rawal in his conclusion.

Actual process of reforms began in Nepal twelve years ago. “The restoration of democracy in 1990 provided further impetus to the reform process. Measures to liberalize trade, investment and the financial system were adopted in order to provide a context for private sector-led growth. The reform measures entailed convertibility of the rupee for current account transactions, introduction of a one-window investment system, approval of enabling financial and business legislation, identification and privatization of inefficient state-owned enterprises, and allowing the commercial banking sector to receive foreign investment,” said Professor Bishwa Keshar Maskay.

“We at NRB feel that strong corporate governance is necessary condition for the development of vibrant and resilient financial market and is an important instrument to protect the interest of investors and depositors,” said Dr. Rawal. “In the Nepalese context, highly unsatisfactory performance of the two major banks and reports of rampant irregularities at a number of financial institutions have prompted NRB to initiate appropriate actions aimed at encouraging transparency and accountability.”