Stock Market Soars Amid Banking Tensions – What’s Driving Nepal’s Economic Shift?

Nepal’s Economic Outlook: Stock Market Gains Amid Banking Stress and Rising Foreign Investment 

📈 Stock Market Update: NEPSE Rises, But Caution Remains

Nepal’s stock market showed a strong upward movement on Tuesday, with the NEPSE index climbing 28.91 points to close at 2,660.39, marking a 1.09% increase from the previous trading day. This also marks the third consecutive day of gains.

• Total trading volume: NPR 7.03 billion

• Trend: 3-day upward streak

• Red Flag: Margin lending (share-backed loans) rose by NPR 34.02 billion in the first nine months of the fiscal year—a 37.8% year-on-year increase, raising concerns over market sustainability.

Analysis: Although investor confidence appears to be returning, the sharp rise in margin lending signals potential long-term volatility. Experts urge caution, especially from new investors.

🏦 Banking Sector Under Pressure: Rising Loan Recovery Tensions

As the fiscal year ends, banks are under immense pressure to recover outstanding loans—a stress that has turned violent in some cases.

• Incident: A loan defaulter attacked Global IME Bank’s Lamki branch manager, Harishchandra Bhatt, at his workplace. Bhatt clarified it was related to loan recovery, not a personal issue.

• Regulatory Push: NRB Governor Dr. Bishwanath Paudel recently instructed aggressive loan recovery, intensifying the pressure on bankers.

• Human Approach: NRB Executive Director Kiran Pandit stressed that borrowers are still customers and urged banks to maintain communication and relationship management.

Microfinance Crisis:
CYC Nepal Microfinance submitted a 17-point reform proposal to NRB, highlighting:

• Regulation of interest rates via the MAPR system

• Institutional mergers (goal: reduce microfinance institutions to fewer than 20)

• Implementation of borrower education programs

• A three-year phased reform plan

🌍 Foreign Direct Investment (FDI): Optimistic Signs of Growth

FDI in Nepal is showing strong recovery:

• FDI stock rose by 11.8%, reaching NPR 295.50 billion by the end of FY 2022/23

• Composition:

  • 52.8% equity capital

  • 33.7% reserves

  • 13.5% debt

Top sectors receiving FDI:

1. Electricity, gas, steam, and air conditioning: NPR 88.61 billion

2. Manufacturing: NPR 86.77 billion

3. Financial and insurance services: NPR 76.75 billion

Distribution:

• 59.7% of FDI stock is in the industrial sector

• 40.2% in services

Top five investor countries:

1. India – NPR 103.5 billion

2. China – NPR 35.5 billion

3. Ireland – NPR 22.6 billion

4. Australia – NPR 19.1 billion

5. Singapore – NPR 18.8 billion

💡 Policy Moves and Development Initiatives

• New Foreign Investment Provision in IT Sector:
  Nepal Rastra Bank (NRB) introduced a new policy allowing IT-exporting firms to invest abroad using up to 50% of their paid-up capital or $1 million USD, based on their foreign currency earnings from the past three fiscal years.

• Fintech Integration with India:
  Under the PHD Chamber of Commerce & Industry, the India-Nepal Fintech Summit 2025 concluded in New Delhi.
  Key takeaway: Integrating India’s UPI system with Nepal’s digital payment infrastructure.

• Green Mobility Financing:
  Siddhartha Bank and Sipradi Trading signed a deal to provide electric taxi loans for the purchase of Tata electric vehicles, encouraging sustainable transport.

• Privatization Drive:
  The government has begun the process of selling four dormant state-owned enterprises:

  • Janakpur Cigarette Factory

  • Butwal Spinning Mill

  • Nepal Metal Company

  • Nepal Orient & Magnesite Company

• Karnali Province Initiative:
  Announced plans to develop hydropower projects up to 20 MW through partnerships between local governments and the private sector.

🌐 Overall Economic Landscape: Growth, Poverty & Reforms

Despite the 2015 earthquake and subsequent trade disruptions, Nepal has maintained an average GDP growth of 4.4% in recent years. However, poverty reduction remains a major challenge, with around 6 million Nepalis still living in poverty.

Strategic Goals:

• Exit LDC status by 2022 (target achieved)

• Become a middle-income country by 2030, requiring over 7% annual GDP growth

Trade and Infrastructure Development:

• Nepal has ratified the WTO Trade Facilitation Agreement (TFA) and the Revised Kyoto Convention (RKC)

• A national action plan to reduce the trade deficit is underway

• Plans to generate 15,000 MW of hydropower within the next decade

• Nepal adopted the Integrated IP Policy 2017, with a new IP bill under preparation

✅ Conclusion:

Today’s stock market rally offers a breath of fresh air for investors, but the underlying stress in the banking sector and the surge in margin lending raise red flags. On the brighter side, increased foreign investment and policy reforms point to long-term growth potential. Nepal’s economic journey ahead will depend on maintaining this balance between recovery and risk management.