<figure><img src="https://superdesk-pro-c.s3.amazonaws.com/sd-nepalitimes/20221107171148/636937739c7e80680e03fe38jpeg.jpg" alt="" width="1050" height="642"/><figcaption>BHANU BHATTARAI</figcaption></figure>Slippery slope is what banks have been treading on last few weeks by engaging in a price war on deposits. One can understand the soup they are in. Higher interest rates do not bring in significant new deposits, yet they are compelled to raise the rates to retain what they have.They will also be nervous about upcoming outflow from the banking system towards mid January when first tranche of annual corporate income tax is due for payment. Depositors are happy for now but imagine the plight of businesses dependent on bank debt.How long will this credit crunch last? Is there light at the end of the tunnel? Obviously, there will be some relief once government starts releasing payments to vendors and suppliers of various goods, services and developmental works – these are normally bundled toward latter half of a financial year. But judging by how banks behaved last three years, there is no guarantee that the crunch will not resurface next October.Read also:<a style="background-color: #ffffff; font-size: 15px; letter-spacing: 0.01em;" href="https://www.nepalitimes.com/opinion/banks-biting-off-more-than-they-can-chew/" target="_blank" rel="noopener">Banks biting off more than they can chew?</a>, Suman Joshi<a href="https://www.nepalitimes.com/here-now/why-does-the-credit-crisis-keep-repeating-itself/" target="_blank" rel="noopener">Why does the credit crisis keep repeating itself?</a>Band aid solutions will not work anymore. A strong medication must now be administered. It will be painful but, in many ways, <a href="https://www.nepalitimes.com/opinion/banks-biting-off-more-than-they-can-chew/">banks brought it upon themselves</a>. There are fundamental issues with our economy and banking sector that have direct relationships with monetary equilibrium.Here are examples of initiatives banks may consider without any support or concessions from the government or the central bank:Ration credit. Banks resorted to aggressive credit expansion following mandatory increase in paid up capital and in anticipation of rapid economic growth post installation of a stable government. But their reading of monetary environment proved wrong time and again. Deposit mobilisation has not kept pace nor aligned with growth in loan books. The only way forward is to direct credit flow only into areas that will help productivity, until such times that deposit-loan growth mismatch is corrected. In any case, our financial system is banking-heavy and alternative investment options like private equity and venture capital are emerging.Read also:<a style="background-color: #ffffff; font-size: 15px; letter-spacing: 0.01em;" href="https://archive.nepalitimes.com/regular-columns/guest-editorial/banking-crisis-explained,1096" target="_blank" rel="noopener">Banking crisis explained</a>, Suman Joshi<a style="background-color: #ffffff; font-size: 15px; letter-spacing: 0.01em;" href="https://www.nepalitimes.com/here-now/crunching-the-numbers-on-credit/" target="_blank" rel="noopener">Crunching the number on credits</a>, Ramesh Kumar and Sikuma RaiExpansion of formal economy. There is no denying that the Nepali economy is growing, albeit driven mostly by private sector. Private wealth has multiplied in value and people are generally better off than they were. Whilst income disparity may have widened, there are reasons to believe that anticipated government spending on infrastructure and creation of enabling environment will help us continue to grow in the medium term. However, a significant part of the economy is in the shadows of formal transactions. Size of our informal economy is estimated at anything between 50 to 100% of the formal one. And we remain a predominantly cash economy. Regulations aimed at channeling financial transactions through banking institutions must be put to use effectively. Banks, on occasions, have resisted implementing regulatory guidelines on cash transactions for fear of losing deposits. We must expand the formal economy to have more money staying within the banking system. Banks can play a catalytic role in encouraging businesses to avoid cash payments.E-payments. <a href="https://www.nepalitimes.com/banner/nepals-budding-e-commerce-ecosystem/" target="_blank" rel="noopener">Digital banking</a> is also an important tool to help expand formal economy. Banks need to take their ongoing initiatives on digital channels to the next level through deeper collaboration with small businesses. For example, it should be possible for a bank (or a number of banks together) to pilot a No Cash Zone in say Durbar Marg area, or the restaurant district of Jhamel, by getting all shops or restaurants to sign up to a campaign to accept digital or card payments only. These are locations frequented by more affluent customers. It can gradually be replicated elsewhere. Obviously, if people can pay for basic purchases like milk and vegetables conveniently through a credit card or a digital wallet, they will carry less cash. That money will stay as bank deposits until spent.Cooling period. A casualty of rapid business expansion has been quality human resource within the banking industry. Growth in banks’ business and branch network create new positions which are often filled by people with lesser skills and experience. Many young bankers hop-scotch their way up through a number of banks and assume positions of responsibility without necessary skills and experience. Add to that generally aggressive lending behavior with excessive reliance on real estate collateral. Frankly, potential for sub-standard loan assets and operational risk in many Nepali banks is cringe-worthy. The IMF has already expressed their concern over quality and sustainability of unnatural growth achieved by the sector in recent years. Just like a cooling period has been made mandatory for CEOs, a mechanism must be put in place to arrest the tendency among employees at supervisory and managerial levels to move to another bank at short intervals for quick gains. Why would a bank invest on training and grooming an employee if only for another bank to offer him a higher position? Many organizations in the western world have stringent non-compete clauses in employment contracts.Writer’s note: I have been a career banker and spent 24 years in the industry. Some may think I’m critical of banks because I’ve retired from banking profession. But I’ve had a fulfilling banking career and I feel deeply indebted to Nepali banking sector for making me who I am. I strongly believe that this sector needs to be understood in correct perspective. Raising contemporary banking issues is my way of giving back to the industry. Also, it sometimes is not feasible for practicing bankers to voice their concerns. All said and done, banking remains the most transparent sector of the economy; its contributions to economic growth have been unmatched. I will continue to share my dui paisa to help regain its stature as a well-respected sector.Suman Joshi is an ex-banker and Chair of True North Associates, a private equity firm.

original

674x448

610x380

500x500

400x266

400x240

400x203

301x200

Banking on a course correction

<figure><img src="https://superdesk-pro-c.s3.amazonaws.com/sd-nepalitimes/20221107171144/636936869c7e80680e03fde6jpeg.jpg" alt="" width="1500" height="976"/><figcaption>Photo: YUVARAJ SHRESTHA</figcaption></figure>At a ministerial review meeting last month, Prime Minister K P Oli warned bureaucrats he would not take “If’s and but’s” anymore in expediting infrastructure projects. This was his latest strict instruction to ministries to deliver results.Various Parliament committees have also issued similar instructions. Cabinet ministers and secretaries have repeatedly instructed government officials to be result-oriented. Yet, a report this week by the Office of the Auditor General shows that four months into the fiscal year, only 11% of the budgeted capital expenditure has been spent. More frightening: the government spent three times that amount on salaries, administrative costs an overheads.“It is clear that issuing instructions alone will not work,” says economist Keshav Acharya, “instead of more instructions we need to pinpoint obstacles to implementation of projects and remove them.”Read also: <a href="https://www.nepalitimes.com/editorial/communist-capital/" target="_blank" rel="noopener">Communist capital</a>, EditorialHowever, the government already has monitoring and evaluation mechanisms in place: at the Prime Minister’s Office, the National Planning Commission, and the finance and other ministries have their own project assessment committees. Most experts blame the lack of accountability in the political leadership and a lethargic bureaucracy.There was hope that with a strong government commanding a <a href="https://www.nepalitimes.com/editorial/two-thirds-empty/" target="_blank" rel="noopener">two-thirds majority in Parliament</a>, and devolution of power to local governments, things would change. But not only has the development budget remained unspent, but there has been shocking over-spending in current expenditure (administrative cost, salaries, vehicle purchases, or allowances on foreign trips). In the first quarter, the national government spent three times more on current expenditure than on capital disbursement.The government is spending on cars, but not on maintaining roads. Whatever little is disbursed is mis-spent on unnecessary projects like this road that cuts through an ecologically sensitive wetland in Pokhara Valley (above).Most provincial governments have managed to spend even less – only about 1% of their capital expenditure in the first quarter.The inability to spend the development budget has been a chronic malaise in Nepal, but this year, it is worse because of Kathmandu’s reluctance to devolve financial decision-making to local governments. This has triggered a <a href="https://www.nepalitimes.com/here-now/crunching-the-numbers-on-credit/" target="_blank" rel="noopener">credit crunch in the banking sector</a> creation and encouraged migration. At this rate the government will not meet its <a href="http://archive.nepalitimes.com/regular-columns/guest-editorial/guest-editorial-Nepal-economic-growth,923" target="_blank" rel="noopener">8% growth target</a> this year.Says economist Dilliraj Khanal: “The entire system of development administration has become so ineffective that unless it is overhauled, we will not see growth and progress.”Read also:<a style="background-color: #ffffff; font-size: 15px; letter-spacing: 0.01em;" href="https://www.nepalitimes.com/banner/calendar-of-economic-change/" target="_blank" rel="noopener">Calendar of economic change</a>, Om Astha Rai<a style="background-color: #ffffff; font-size: 15px; letter-spacing: 0.01em;" href="https://archive.nepalitimes.com/article/editorial/editorial-Nepal-economy,3746" target="_blank" rel="noopener">White swans</a>, Editorial<a style="background-color: #ffffff; font-size: 15px; letter-spacing: 0.01em;" href="https://archive.nepalitimes.com/regular-columns/guest-editorial/banking-crisis-explained,1096" target="_blank" rel="noopener">Banking crisis explained</a> , Suman Joshi

1250x600

1084x550

Roadblocks

<figure><img src="https://superdesk-pro-c.s3.amazonaws.com/sd-nepalitimes/20221107171136/636934779c7e80680e03dff9jpeg.jpg" alt="" width="1400" height="1069"/><figcaption>Bhanu Bhattarai</figcaption></figure>Nepal’s banks have once more entered the dark tunnel of scarcity of loanable funds. Commercial banks have misinterpreted the monetary environment for three years in a row -- they lend aggressively during the first quarter, and run out of steam thereafter until the final quarter of the fiscal year.The seeds of the trouble were sown five years ago. As the IMF puts it in its most recent South Asia Regional Update, ‘Loose monetary conditions, along with a fourfold increase in banks’ paid-up capital in the two years to mid-2018 required by the Nepal Rastra Bank (NRB), have fueled a strong credit expansion. Private sector credit growth has averaged 22% (y/y) in the past two years, even as the NRB maintains ceilings on banks’ loan-to-deposit ratio and the loan-to-value ratio on car loans.’Nepal’s financial landscape is heavily skewed towards banking. According to a recent World Bank report, banks account for 87% of financial sector assets in Nepal. Private equity and venture capital space are still in nascent stages. The <a href="https://www.nepalitimes.com/banner/why-the-private-sector-is-spooked/" target="_blank" rel="noopener">private sector</a> thus largely depends on bank debts, and in their absence, businesses have had to postpone plans or slow down operations. This has resulted in increased cost or lost opportunities.Recurring <a href="https://www.nepalitimes.com/here-now/crunching-the-numbers-on-credit/" target="_blank" rel="noopener">credit crunches</a>, which last several months every year, have impacted the economy as a whole. Key responsible parties here are:<ul><li>Government of Nepal for its inability to spend on capital expenditures</li> 	<li>NRB for instigating the crisis and then offering regulatory forbearance that encourages banks to push prudential boundaries</li> 	<li>Banks which appear to be driven with the sole objective of servicing increased capital</li></ul>Nepal’s economic growth over past two decades has been largely led by the private sector, in spite of ineffective governments and inefficient bureaucracy. Banks should refrain from pointing fingers at NRB or the government. The NRB has not always been pro-active, its regulatory approach has often been ‘one step forward two steps back’. The government’s norm has always been to bulk up capital expenditure towards the end of the year. We want NRB and the government to be more responsive, but it will be a gradual process at best. And frankly, the banking business has thrived even in this environment, so let’s be reasonable.Read also: <a href="https://archive.nepalitimes.com/regular-columns/guest-editorial/banking-crisis-explained,1096" target="_blank" rel="noopener">Banking Crisis Explained</a>, Suman JoshiAs the most transparent sector of the economy, the onus is on the banks collectively to manage public perception and repair the community’s battered image. Here’s a list of items they need to consider:1. Anticipate better, and get your basics right. Will the market offer sufficient new deposits to fund growth in loan books? Nepal may be more stable politically, but with compromises from bureaucrats and politicians, it will be a while before their Key Performance Indicators align with Nepal’s aspirations for rapid economic growth. It is unrealistic, this early, to expect government spending to veer from tradition to follow a desired timeline that match banks’ need for new deposits.2. Who is winning that debate in the boardroom? Most banks appear to have adopted a strategy to grow lending books aggressively to meet shareholder expectations of return on equity. The impact of this on their lending behavior is worrisome. What is the quality of loan assets banks are booking when they are expanding at 22% while the economy grew at 3-4% annually over last few years? Also the continued contribution of banks to real estate buoyancy may someday come back to haunt them. Excessive reliance on real estate as collateral has affected a loan officer’s approach to lending. Under the current loan loss provisioning norms and multiple banking context, it is possible to keep masking bad loans, which raises doubts about quality of profits. The IMF has singled out this challenge and suggests: ‘Rapid credit growth underscores the need to accelerate banking sector reforms. Building on the recent amendments to the regulatory framework, loan classification, provisioning, and banks’ risk management practices should be upgraded.’3. Is it possible that many banks have bitten off more than they can chew by expanding their operations and branch network rapidly? Frequency of operational risk events suggests that quality of human resource and internal control mechanisms need significant improvement.Banks have finally acknowledged the need to adopt digital channels of delivery. Better late than never. Even so, there is little chance of sufficient investment happening here. It is not enough to link bank systems to a digital payment platform. A key driver for consumer uptake is a cultural shift within individual banks to champion digital banking services.Read also: <a href="https://www.nepalitimes.com/banner/nepals-budding-e-commerce-ecosystem/" target="_blank" rel="noopener">Nepal's budding e-commerce ecosystem</a>, Sikuma RaiClearly, Nepal is an over-banked economy with smaller banks struggling to stay relevant. Industry experts agree that there is a case for reduction in number of banks. Market prices are currently at interesting levels for more capable banks to consider acquiring other institutions. It may be easier said than done, but if there is an industry-wide resolve, the ducks will line up.Suman Joshi is a former banker and Founder and Chairman of True North Associates, a private equity firm.

Banks biting off more than they can chew?

<a href="https://nepalitimes.com/news/ball-in-balen-s-court">Nepal’s newly-installed Prime Minister Balendra Shah</a> unveiled his Council of Ministers after taking the oath of office on Friday in Kathmandu.&nbsp; Besides Nepal's pre-existing problems, his team will immediately have to deal with the fallout of the West Asia conflict to satisfy an electorate impatient for change. The Rastriya Swatantra Party (RSP) won a majority in the 5 March election and capped the Cabinet size at 15. Shah, a structural engineer and musician, himself has taken charge of the Defence and Industry Ministries. There has been an attempt to make the Cabinet inclusive with women in five of the new portfolios.&nbsp; After much negotiation, the powerful Home Ministry, a bone of contention between Shah and RSP Chair Rabi Lamichhane, has gone to Sudan Gurung, a hitherto little-known figure who <a href="https://nepalitimes.com/here-now/who-or-what-is-hami-nepal">rose to prominence after the September GenZ protest</a> and won the election from Gorkha-2.&nbsp; Gurung will be in charge of Nepal’s internal security apparatus and maintaining law and order. And with Gurung, a close ally of the Prime Minister, in charge, some note the Home Ministry will be a hook for Shah if Lamichhane, with his share of controversies, steps out line.&nbsp;  <figure> <img src="https://publisher-publish.s3.eu-central-1.amazonaws.com/pb-nepalitimes/swp/asv65r/media/20260327090324_c7725ea5fb9ffbf96df25a7b3122520b7ae3ee10548aed3f37781a7e5440e51a.jpg" data-media-id="editor_2" data-image-id="20260327090324_c7725ea5fb9ffbf96df25a7b3122520b7ae3ee10548aed3f37781a7e5440e51a" data-rendition-name="original" width="1440" height="960" loading="lazy" alt="Balen Shah swearing in NT"> </figure>  Notable RSP leaders, including vice-chair DP Aryal, were said to have been vying for the portfolio.&nbsp; Gurung is the founder of the non-profit Hami Nepal, which worked primarily in earthquake relief in 2015, and emerged onto the national stage during negotiations to appoint Sushila Karki as interim PM after the unrest. He was also involved in key negotiations that cemented Balendra Shah and Rabi Lamichhane’s political partnership in the runup to the election.&nbsp; Most new Cabinet members are not just first-time ministers, but are also freshmen lawmakers. Many are experts in their fields. Finance Minister Swarnim Wagle is an <a href="https://nepalitimes.com/here-now/nepal-needs-to-rebrand-itself">economist </a>with degrees from the London School of Economics and Harvard, and was previously Chief Economic Advisor at the UNDP Regional Bureau for Asia and the Pacific, and also served in Nepal’s National Planning Commission.&nbsp; Previously a member of Nepali Congress, Wagle exited the party in 2023 following differences with top leadership, and joined the RSP. Wagle won a by-election from Tanahu-1 in 2023 and won again from the same constituency in this month’s election.&nbsp; Shishir Khanal, who heads RSP’s foreign affairs department, has been appointed Minister of Foreign Affairs. &nbsp;Khanal is co-founder of Teach For Nepal, was briefly Education Minister when the RSP was part of the the Pushpa Kamal Dahal-led coalition government in 2023.&nbsp;  <figure> <img src="https://publisher-publish.s3.eu-central-1.amazonaws.com/pb-nepalitimes/swp/asv65r/media/20260327090324_b1a670bac12e2bf4df955134f58c8de7718d48f6be4e1f2df7c7c52f82e36e42.jpg" data-media-id="editor_4" data-image-id="20260327090324_b1a670bac12e2bf4df955134f58c8de7718d48f6be4e1f2df7c7c52f82e36e42" data-rendition-name="original" width="1440" height="960" loading="lazy" alt="Balen Shah swearing in NT"> </figure>  Law Minister Sobita Gautam is a lawyer by profession and worked in governance and public policy before she was elected as the youngest MP in the 2022 election.&nbsp; Health Minister Nisha Mehta is a nurse and became a lawmaker under the Proportional Representation system in this election which swept the RSP to power with a near two-third majority.&nbsp; Education Minister Sasmit Pokharel, a first-time MP elected from Kathmandu-5, served as an aide to Balendra Shah when he was mayor of Kathmandu and a was member of the KMC City Planning Commission.  <figure> <img src="https://publisher-publish.s3.eu-central-1.amazonaws.com/pb-nepalitimes/swp/asv65r/media/20260327090324_5ed794d7bf0cac2844277521810225c4355746b9c3f7369f70cacc878c94641f.jpg" data-media-id="editor_5" data-image-id="20260327090324_5ed794d7bf0cac2844277521810225c4355746b9c3f7369f70cacc878c94641f" data-rendition-name="original" width="1440" height="960" loading="lazy" alt="Balen Shah swearing in NT"> </figure>  Biraj Bhakta Shrestha is Energy Minister, and also served as the Minister for Youth and Sports in the Dahal-led coalition government in 2024. Before joining RSP, Shrestha was elected to the Bagmati Provincial Assembly in the 2017 elections representing the r<a href="https://nepalitimes.com/here-now/rsp-s-activist-dna">eformist Bibeksheel Sajha Party</a>. He will immediately face the challenge of addressing the <a href="https://nepalitimes.com/news/rough-road-ahead-for-new-nepal-rulers">impact of the West Asia war,</a> including rising petroleum prices and a shortage of cooking gas. Sita Badi, who was elected through the PR system, is Minister for Women, Children and Senior Citizens. She was born and brought up in the underserved and marginalised Badi community in Surkhet and has been advocating for the rights and welfare of women, children, and minority communities. Other ministers include RSP spokesperson Pratibha Rawal as Minister for Federal Affairs and General Administration as well as Land Management, and Gita Chaudhary as Minister for Agriculture, Sunil Lamsal is Physical Infrastrucutre, Transport, and Urban Development Minister, Khadka Raj (Ganesh) Paudel as Tourism and Civil Aviation Minister. Dipak Sah is the Labour and Employment Minister, and Bikram Timilsina is Communication Minister.  <figure> <img src="https://publisher-publish.s3.eu-central-1.amazonaws.com/pb-nepalitimes/swp/asv65r/media/20260327090324_b67c2d199d4897031583a5b7ec7ce43e88771167696e6161665eeb5fca25d3ed.jpg" data-media-id="editor_8" data-image-id="20260327090324_b67c2d199d4897031583a5b7ec7ce43e88771167696e6161665eeb5fca25d3ed" data-rendition-name="original" width="1440" height="960" loading="lazy" alt="Balen Shah swearing in NT"> </figure>  Meanwhile, RSP vice-chair DP Aryal, who many thought would be home minister because of his proximity with Rabi Lamichhane has been proposed as Speaker of the House.&nbsp; Aryal previously served two brief stints as the Minister of Labour when RSP was part of the RSP’s coalition governments in 2023 and 2024. As minister Aryal came <a href="https://nepalitimes.com/editorial/skeletons-in-the-cabinet-k5x6py1v">under scrutiny </a>for his involvement in an employment agency that was investigated for illegal acquisition of wealth in 2020. If appointed House Speaker, Aryal will be expected to play a neutral and non-partisan role in Parliamentary affairs. &nbsp; With the full Cabinet announced on Friday, Prime Minister Shah and his team now have their work cut out for them. &nbsp;The government’s first priority will be ensuring the safety and long-term security of the almost two million <a href="https://nepalitimes.com/here-now/migrant-workers-in-wartime">Nepalis living and working in the Gulf</a> amid the ongoing conflict in the region, and taking steps to cushion Nepal’s economy from the Israel-US war on Iran. The new leaders will also be tasked with implementing the findings of the Karki Commission report on the September violence that paved the way for the election and the rise of the RSP. &nbsp;  <figure> <img src="https://publisher-publish.s3.eu-central-1.amazonaws.com/pb-nepalitimes/swp/asv65r/media/20260327090324_69b36bc62737e44ade4080be36688f9c2f92201356e1df2072cef8ecc6a9be5d.jpg" data-media-id="editor_11" data-image-id="20260327090324_69b36bc62737e44ade4080be36688f9c2f92201356e1df2072cef8ecc6a9be5d" data-rendition-name="original" width="1440" height="960" loading="lazy" alt="Balen Shah swearing in NT"> <figcaption>Snapshots from PM Balen Shah's swearing-in ceremony</figcaption> </figure>   <figure> <img src="https://publisher-publish.s3.eu-central-1.amazonaws.com/pb-nepalitimes/swp/asv65r/media/20260327090324_69b36bc62737e44ade4080be36688f9c2f92201356e1df2072cef8ecc6a9be5d.jpg" data-media-id="editor_12" data-image-id="20260327090324_69b36bc62737e44ade4080be36688f9c2f92201356e1df2072cef8ecc6a9be5d" data-rendition-name="original" width="1440" height="960" loading="lazy" alt="Balen Shah swearing in NT"> </figure>   <figure> <img src="https://publisher-publish.s3.eu-central-1.amazonaws.com/pb-nepalitimes/swp/asv65r/media/20260327090324_8646d490883154f696bcdc6e2375084419f2eefaaf0ef0c7e2710aa6e2d94a8a.jpg" data-media-id="editor_13" data-image-id="20260327090324_8646d490883154f696bcdc6e2375084419f2eefaaf0ef0c7e2710aa6e2d94a8a" data-rendition-name="original" width="1440" height="960" loading="lazy" alt="Balen Shah swearing in NT"> </figure>   <figure> <img src="https://publisher-publish.s3.eu-central-1.amazonaws.com/pb-nepalitimes/swp/asv65r/media/20260327090324_89d17d6584593be1eb23eb1d4872c3b7c600e1620f3aca48dbff4838364a1e3c.jpg" data-media-id="editor_14" data-image-id="20260327090324_89d17d6584593be1eb23eb1d4872c3b7c600e1620f3aca48dbff4838364a1e3c" data-rendition-name="original" width="1440" height="960" loading="lazy" alt="Balen Shah swearing in NT"> </figure>  &nbsp;Full list of ministers: Prime Minsiter: Balendra Shah Home Minister: Sudan Gurung Finance Minister: Swarnim Wagle Foreign Affairs Minister: Shishir Khanal Law, Justice and Parliamentary Affairs Ministry: Sobita Gautam Energy, Water and Irrigation Minister: Biraj Bhakta Shrestha Education Minister: Sasmit Pokharel Physical Infrastrucutre, Transport, and Urban Development Minister: Sunil Lamsal Communication and Information Ministry: Bikram Timilsina General Administration Minister: Pratibha Rawal Women, Children and Senior Citizens Minister: Sita Badi Health and Population Minister: Nisha Mehta Agriculture Minister: Gita Chaudhary Culture, Tourism and Civil Aviation Minister: Khadka Raj (Ganesh) Paudel&nbsp; Labour Minister: Dipak Sah

Nepal swears in new Cabinet

Next to my home in Bhainsepati stood a dead Uttis tree next to a public tap. A nearby water tank built a year earlier had killed its roots.
If the tree collapsed, people living nearby and those queuing up to fetch water at the tap would be hurt. With the storm season approaching, the risk was obvious. The tree could also fall on my own house, so I volunteered to find a way to remove this threat.
Little did I know how difficult it would be. A forest officer acquaintance told me there is a special procedure for cutting risky trees. I contacted the Lalitpur District Forest Office (DFO).&nbsp;
He said a technical report from a field officer was needed, and passed on her number. When I called, she asked for the location, photos, and a video. I send them all.
The ward office also suggested I use Lalitpur Metropolitan City’s mobile app, Lalitpur Alert, to report the problem. I uploaded photos, and submitted the complaint. This seemed to be very easy and efficient.
Indeed, the next day the municipality called me back and I explained the situation. They said they could not act without permission from the DFO. I asked why the app existed if the city could not act on such complaints. The officer said he did not know. My happiness was short-lived.
A couple of days later, the app notified me that my problem had been solved, and the complaint was removed. But the dead tree still stood there defiantly.&nbsp;
A week later, two forest technicians arrived on a scooter to inspect the tree. They looked up at the tree and asked if I had a measuring tape so they could measure its diameter.
“You are the technicians,” I told them. “You came to inspect the tree, and you came without a measuring tape?”
I rummaged at home and found a tape measure. They got the diameter and said they would prepare a technical report, but I would have to obtain a recommendation letter from the ward office and submit it to the DFO.
“This tree is dead,” I told them. “It is on public land. You have seen it with your own eyes. You know it's dangerous, so write a report and arrange for it to be cut. Why do I have to run from office to office to apply for recommendation letters?”
Their answer was simple, yet expected: “Those are the rules.”
They left, and I gave up. Two technicians spent half a day visiting the site. The metropolis runs a complaint system with a mobile app funded with public money. The ward office has staff to solve problems. Yet none of these institutions took the responsibility to remove a dangerous tree.
Everyone is busy citing rules and regulations and passing the buck. Weeks passed. Everyone reacted to the problem, but no one took any responsibility to resolving it.
Then, one bright December morning under a deep blue sky, a few neighbourhood boys were swinging their axes on the trunk. They had no proper equipment, no safety gear, and no professional experience.
I gave the boys some money and so did a neighbour. It took an hour or so for the tree to come crashing down safely. We had paid to have the tree cut illegally, and the matter ended there.
Multiple government offices, technicians, procedures, and mobile apps could not remove a dangerous tree, and we had to break the law to cut it. The tree is gone now, but the real problem remains: an inefficient bureaucracy.&nbsp;
It is perhaps symbolic that the tree is the election sign of the Nepali Congress, which was part of Nepal's governance and bureaucracy for decades and did not perform well in this month's election.&nbsp;
That is the bureaucracy that the new RSP government now has to get to work. But it will not be easy.
I posted on Facebook: ‘When people feel leaders have grown arrogant or corrupt with power, they change their minds and their votes. If those who replace them follow the same path, voters will again change their minds and votes.’
I continued: ‘The strength of democracy lies in this simple principle: the more citizens act as independent voters, the stronger democracy becomes. The more they behave as party loyalists, the weaker it grows. If we want a better system, we must demand deep reform of the state bureaucracy and hold institutions accountable.’&nbsp;
The first responses came from two senior government officials. They told me privately that they agreed by 200% but could not say so publicly.
It is quite normal for a Nepali to get the run around in government offices, it is almost a given to be asked for a bribe. As an environmental reporter and citizen, I have numerous such examples.
It is not just one sector that has been suffering. It is everywhere, and this is just an example of how complicated our bureaucracy is. As a 40 something person, I am old enough to remember the 1990 pro-democracy movement, &nbsp;the Maoist insurgency. Many promises made then by the politicians were broken.
We fought for rights, we fought for regime change. The country has changed political systems several times, from monarchy to multiparty democracy and finally a republic.
Yet one thing that remains largely untouched or reformed is our inefficient and corrupt bureaucracy. The new government, to be led by the youngest prime minister in our history must start this reform if it wants to deliver.&nbsp;
Otherwise, we may have to keep changing governments every few years, and still find ourselves unable to legally cut down even one dead tree.

A dead tree tests Nepal's bureaucracy

The RSP and its prime minister are being sworn in this week after gaining an unprecedented election victory. This is a welcome change for many Nepalis who see it as a remedy to decades of coalition instability.&nbsp; Yet Nepal’s political history suggests otherwise. No majority government has ever completed its full term. This reveals a deeper structural problem: weakly institutionalised parties dominated by personalities rather than ideas. 1951: Dissatisfaction with the oppressive Rana regime among the educated elite led to the creation of political parties like the Nepali Congress (NC), Praja Parishad (later merged into the Nepali Congress), Gorkha Parishad, and the Nepal Communist Party.&nbsp; They emerged secretly, mainly in India during the height of that country’s independence. They organised a successful armed uprising against the Rana rule.&nbsp; 1959: The NC won a two-thirds supermajority in the first general election. Within a year, King Mahendra staged a coup and established the partyless absolute monarchy called the Panchayat system.&nbsp;  <figure> <img src="https://publisher-publish.s3.eu-central-1.amazonaws.com/pb-nepalitimes/swp/asv65r/media/20260322130332_a416ab5703287898f0566dc6d2a6b95d797ce2f4ed55bffcfae2e8edc7737c5e.jpg" data-media-id="editor_0" data-image-id="20260322130332_a416ab5703287898f0566dc6d2a6b95d797ce2f4ed55bffcfae2e8edc7737c5e" data-rendition-name="original" width="675" height="849" loading="lazy" alt="Mahendra and BP"> </figure>  1991: After the People’s Movement, the ban on parties was lifted and Nepal became a constitutional monarchy. Elections were held under a new Constitution and the NC won 110 out of 205 seats, joining the United Leftist Front which functioned as a loose coalition.&nbsp; Prime Minister Girija Prasad Koirala’s first term ended with his resignation due to infighting, particularly with Ganesh Man Singh, who accused him of <a href="https://doi.org/10.2307/2645025" target="_blank">“emerging as a dictator, downgrading democratic norms and values, and even selling out national interests.”</a> Parliament was dissolved and the NC ended up losing the ensuing elections. 1994: Following the NC’s defeat, a <a href="https://doi.org/10.2307/2645025" target="_blank">hung parliament emerged</a> with the UML forming a minority government that lasted only nine months before collapsing after a no-confidence vote, allowing a NC-led coalition to return to power.&nbsp; 1999: Voters gave the NC a second chance and the party won 111 out of 205 seats. The party was divided between supporters of Koirala and Krishna Prasad Bhattarai, who became prime minister. &nbsp;The internal NC power struggle intensified and Koirala became prime minister again only to face bribery scandals, the Maoist insurgency, and the royal massacre.&nbsp; In 2001, under growing pressure from both the public and the party, <a href="https://www.nytimes.com/2001/07/20/world/nepal-premier-resigns-caught-in-chaos-after-royal-blood-bath.html" target="_blank">Koirala was forced to resign</a> to be replaced by Sher Bahadur Deuba. The party eventually split into Koirala’s NC and Deuba’s NC (Democratic). &nbsp;In this chaos, king Gyanendra dissolved the parliament and assumed executive powers.  <figure> <img src="https://publisher-publish.s3.eu-central-1.amazonaws.com/pb-nepalitimes/swp/asv65r/media/20260322130332_e107b95de5641044f72a13fd20f417d16b9a2d1ecbae3492126ee5fd4244bd84.jpg" data-media-id="editor_4" data-image-id="20260322130332_e107b95de5641044f72a13fd20f417d16b9a2d1ecbae3492126ee5fd4244bd84" data-rendition-name="original" width="1250" height="753" loading="lazy" alt="Deuba and Girija"> </figure>  2017: This was the first election under the federal constitution. The UML and Maoists created a surprise pre-electoral alliance, breaking the Maoist coalition with the NC. The left alliance won a massive victory with the UML winning 121 seats and the Maoists 53 seats. Prime Minister K P Oli fell out with Pushpa Kamal Dahal of the Maoists. The House was dissolved, with the UML itself breaking into factions. What followed was seven shaky coalition governments in eight years.&nbsp;  <figure> <img src="https://publisher-publish.s3.eu-central-1.amazonaws.com/pb-nepalitimes/swp/asv65r/media/20260322130352_8b09b374d7fcb811e0a652c7f60b30eea4b9052a19ed3d768ba8ca9aaeb4dec7.jpg" data-media-id="editor_5" data-image-id="20260322130352_8b09b374d7fcb811e0a652c7f60b30eea4b9052a19ed3d768ba8ca9aaeb4dec7" data-rendition-name="original" width="667" height="1000" loading="lazy" alt="Oli and Prachanda"> </figure>  2022: The RSP was formed only four months prior to elections, but managed to become the fourth-largest party. In this month’s &nbsp;election, the RSP won a commanding parliamentary majority by presenting itself to the electorate as different from the discredited old parties.&nbsp; The RSP leadership structure is largely personality-driven and opaque. Party leader Rabi Lamichhane joined the governing coalition with the Maoists and UML securing four ministerial positions. Lamichhane became Home Minister and Deputy Prime Minister, using his swing vote to be the kingmaker party in the coalition. Lamichhane was embroiled in various scandals which he blamed on political vendetta. There was internal dissent within the party and among supporters who felt the coalition betrayed RSP’s founding ideals.&nbsp; Lamichhane <a href="https://thediplomat.com/2023/02/key-ally-quits-government-in-nepal/" target="_blank">reportedly</a> bypassed the party’s internal mechanisms, unilaterally deciding to pull out of the government without broad consultation.&nbsp; The youth-led September protests gave the RSP an opportunity to represent GenZ aspirations, and its popularity was cemented after Balendra Shah joined the party as a prime ministerial candidate.&nbsp; With its dramatic election victory, there is a question whether the &nbsp;party can separate itself from its two leaders, and have internal democracy. Or will it just be a vessel for new political elites to continue staying in power?&nbsp; ‘BALEN PARTY’ The RSP has increasingly relied on the same tactics that the NC once used in its heyday. Backed by Balendra Shah’s meteoric rise to fame, the RSP is called ‘The Balen Party’. <a href="https://nepalitimes.com/opinion/cyberia/rsp-s-pr-list-is-not-good-pr" target="_blank">RSP’s PR list</a> includes celebrities, actors, singers, pageant winners, business personalities, and athletes to maximise visibility and public appeal. Many of these soon-to-be MPs have little to no experience working in government, or together as a team. Which is perhaps why they needed a two-day orientation last week. In today’s attention economy, political currency depends on visibility. This is why the RSP’s strategy to harness Shah’s popularity was necessary to secure victory, while Shah needed a political platform for the election.&nbsp;  <figure> <img src="https://publisher-publish.s3.eu-central-1.amazonaws.com/pb-nepalitimes/swp/asv65r/media/20260322130348_abd1522a1f4f8ad4a0861c3916d86bd9688deafc7c44081b976378405d2b8e39.jpg" data-media-id="editor_8" data-image-id="20260322130348_abd1522a1f4f8ad4a0861c3916d86bd9688deafc7c44081b976378405d2b8e39" data-rendition-name="original" width="900" height="900" loading="lazy" alt="Balen and Rabi"> </figure>  Political parties are essential for a democracy, but when they &nbsp;revolve around one dominant leader, internal institutions become weak, and decision-making becomes centralised in the leader rather than in party committees, rules, or ideological platforms.&nbsp; This is exactly what led to the downfall of the NC and the UML. Both over the years were ridden with inter- and intra-party strife and failed the electorate. RSP must take a lesson from this and unite to institutionalise beyond its two personalities. Or it will suffer the same fate as the legacy parties. Since its inception, RSP has espoused a populist and anti-establishment agenda. The ‘new’ RSP with the Balendra brand gained massive support by being a clear ‘other’.&nbsp; The RSP can fall into the same trap as the NC and the UML by defining itself by what it is not, rather than what it is for. Beyond the external enemies they oppose, these parties often struggle to articulate what they actually stand for.&nbsp; RSP positions itself as an alternative to established parties — a pragmatic, results-oriented political force rather than one driven by traditional ideologies. However,<a href="https://www.cambridge.org/core/books/abs/theorizing-in-comparative-politics/parties-and-ideology/8386083191B53EC86A239B8852D4A6A6" target="_blank"> ideology gives a party identity and direction.</a> Without ideological grounding, RSP risks becoming a hollow vessel for power-chasing politicians who oppose each other’s every move, a story that is all too familiar.&nbsp; RSP can no longer define itself as being anti-establishment. It is now the establishment.&nbsp; While RSP might look like Congress 2.0 to many who have seen Nepal’s democratic trajectory, RSP does differ from past majority parties in both positive and negative ways.&nbsp; Times have also changed. Nepal is no longer a monarchy, literacy rates are much higher, social media has made information more accessible, and Nepalis are less forgiving, as seen by the events that transpired on 8-9 September 2025.&nbsp; The RSP has fielded more qualified candidates, and they could steer the country in the right direction. Many are experts in their fields and have had years of experience prior to joining politics. Having experts from such different backgrounds is a huge asset.&nbsp;  <figure> <img src="https://publisher-publish.s3.eu-central-1.amazonaws.com/pb-nepalitimes/swp/asv65r/media/20260322130352_426011e8c377bffcef6fcb4371325b36fb940eb5a8ab66d3c76ff5cf6f1943c7.jpg" data-media-id="editor_10" data-image-id="20260322130352_426011e8c377bffcef6fcb4371325b36fb940eb5a8ab66d3c76ff5cf6f1943c7" data-rendition-name="original" width="1600" height="1066" loading="lazy" alt="RSP new MPs"> </figure>  Moreover, having MPs from various other parties/fields can also prevent a cult following of hardcore loyalists within the party.&nbsp; There are members loyal to certain RSP leaders in the party, but there are also those who will not hesitate to go against their leaders if need be. The RSP has little opposition in Parliament, so its own members may have to take on a check-and-balance role. Nepal is in a much better spot institutionally compared to what it was like back in the early days of its democracy. There is a Constitution, there is no active conflict, the monarchy is no longer an existential threat to democracy, and the local and provincial governmental bodies have had the time to settle.&nbsp; This means the RSP is in a better position to work without the basic institutional hurdles that previous governments faced, but it will not be able to hide behind institutional issues if it fails to deliver.&nbsp; In the past, majority parties could easily pin the blame on an authoritarian monarchy, a Maoist conflict, a lack of consensus during the constitution-building process, or a newly implemented federal system.&nbsp; Most of these were just excuses for incompetency. Governments were formed and fell based on self-serving negotiations, but they managed to keep the parties afloat, and the citizenry was willing to give them a second, third, or even fourth chance.&nbsp; The RSP will not have this privilege. Nepal has many problems, but its governmental bodies are better institutionalised than when the NC last had a majority. A challenge for RSP now would be fixing broken institutions, not building new ones. A recurring issue during Balendra Shah’s tenure as Kathmandu’s mayor were his <a href="https://kathmandupost.com/politics/2026/01/28/can-nepal-s-viral-mayor-run-the-country" target="_blank">disputes with the bureaucracy</a> that resulted in months of unpaid salary for KMC staff, a lack of collaboration between him and Deputy Mayor Sunita Dangol, and rarely any public appearances.&nbsp; The RSP is inheriting a bureaucracy tainted by deep-seated patronage networks. Sustaining a government requires institutional collaboration and a willingness to work together, not disruption and division.&nbsp; While Nepal has seen the rise of many populist figures in its democratic history, the RSP’s victory based on Balendra Shah’s fame is new. Populism is usually harmful for a democracy because it punishes dissent, turns criticism into betrayal, and fuels hyper-nationalism, authoritarianism, and polarisation. A trend of punishing criticism is already visible on online spaces. Without an effective parliamentary opposition, the responsibility for democratic accountability will fall on the media and civil society. If the trend of intolerance to criticism deepens, Nepal risks sliding toward a majoritarian politics where popularity replaces accountability. Time and again, the Nepali people have given opportunities to parties that promise change, only to face disappointment. Nepal’s political history shows that majority governments fail not because they lack seats, but because they lack institutions.&nbsp; The electoral earthquake Nepal just witnessed could bring sweeping reforms or drown the country’s fragile democracy. If RSP hopes to succeed where others failed, it must build a party that outlives its founders. Suvexa Pradhan Tuladhar is an Early Career Policy Research Fellow at the Nepal Institute for Policy Research (NIPoRe).

Will it be different this time in Nepal?

On Friday, Balendra Shah is taking his oath of office as Nepal's prime minister in a capital city of which he was a mayor till six months ago.
At 35, he will be among Nepal’s youngest prime ministers. His reticence and reclusiveness have reinforced his brand as a doer rather than a talker. This was a persona he cultivated as mayor of someone who cleaned up the city by managing garbage. But he also chased off sidewalk vendors in an effort to ‘beautify’ the city.&nbsp;
After being elected, Shah did not attend RSP events in official capacity, and he was absent at an MP orientation last week.&nbsp;
His refusal to engage with the press, and even stopping to post on social media, have added to the air of reclusiveness. But as prime minister, he may have to communicate more even if it just to stop conspiracy theories and intrigue.&nbsp;
The people he will now represent would like to know, and have a right to know, what he is up to. Otherwise the feeling will grow that Nepal is entering uncharted territory. Governance, the economy and investment do not like uncertainty.
Political scientist Pyakuryal notes that calling Balen a 'man of few words' may serve as a useful epithet if he governs with quiet efficiency rather than fanfare. "But as Prime Minister, he must engage the nation’s will, not simply manage from above," she says.
She adds: "The real test lies in his choice of style: will he lead exclusively, keeping decisions close, or inclusively, opening space for dialogue and shared ownership of governance?"
Nepal's newly-elected lawmakers were sworn in on Thursday. And once sworn in as PM on Friday, Balendra Shah is set to appoint a ‘minimalist’ Cabinet. Although the Constitution caps the size of the Council of Ministers at 25, the party has decided to stick to maximum 18 and not split ministries to accommodate loyalists as was done in the past.&nbsp;
&nbsp;"The Cabinet must support the leadership of the Prime Minister while ensuring accountability to the Parliament,” notes political scientist Sucheta Pyakuryal. “But the questions that come to mind are: will the RSP MPs readily submit to Balen’s leadership and is Balen’s absence from the party’s official events an unwillingness or hesitation to submit to the party?”
Prime Minister Sushila Karki and her ministers ended their interim tenures this week, and she was lauded for upholding her commitment to hold a free, fair and peaceful election. But her image was tarnished for her reluctance to release the investigation report on the September violence, as well as recommending her Home Minister Om Prakash Aryal for a National Assembly seat, and her personal secretary to the National Trust for Nature Conservation. President Ram Chandra Poudel has put Aryal’s nomination on hold. &nbsp;
The Investigation Commission report leaked on Wednesday said the state failed to stop the firing on protestors by Police on 8 September and blamed the Army for not preventing the arson next day. It recommended the prosecution of prime minister KP Oli, home minister Ramesh Lekhak, and Police chief Chandra Kuber Khapung.
Notable names said to be in consideration for the Cabinet include many who are experts in their fields, and RSP wants a young lawmaker as Speaker. The new government will plunge headlong into the economic fallout of the West Asia war.
RSP, with its near two-third majority, does not have to placate any coalition partner, so Nepal is at long last expected to have a stable government after 35 years. Despite hopes that there will not be the usual horse-trading this time, there is tension between supporters of RSP chair Rabi Lamichhane and Balendra Shah. The two have been negotiating in hotel rooms for Cabinet posts for loyalists.&nbsp;
Shah’s larger-than-life online persona and nationwide appeal delivered the RSP its overwhelming electoral victory this month, and this makes the party’s core leadership beholden to him. To what extent is Shah willing to meet Lamichhane’s demands is the critical question, and we will know the answer by this weekend.
Says Pyakuryal: “Because this election showcased personality politics rather than the regular party politics, the dangers of ego-clashes, power-tussles and intraparty realpolitik become very real and this kind of equation can greatly hamper the spirit of democracy, representation and collective good."

<figure>
 <video controls src="https://publisher-publish.s3.eu-central-1.amazonaws.com/pb-nepalitimes/swp/asv65r/media/20260327020320_f91bd3e51c1dd198b099a24daac8c52384b408174506e7f5a0ced1db76773824.mp4" alt="" width="100%" height="100%"></video>
 <figcaption>Animation: ANUP TAMU</figcaption>
</figure>