A policy to encourage the use of AI in the banking sector

Governor Mahaprasad Adhikari, while announcing the monetary policy on Friday, was of the opinion that banks and financial institutions licensed by the National Bank will be encouraged to make maximum use of artificial intelligence (AI). As the use of digital technology such as AI is increasing in banking institutions, Rashtra Bank is ready to encourage its use by identifying its challenges and opportunities. Regulation on AI is now a new topic for central banks in various countries. Some central banks like European Central Bank (ECB), Bank of England, Monetary Authority of Singapore are at the forefront in studying, testing, using and regulating AI.

The use of digital technology in banks and financial institutions is also increasing in Nepal and it seems that the current monetary policy is trying to address AI, which is emerging as the latest technology. "Considering the increasing use of digital technology in institutions licensed/licensed by Rashtra Bank, a necessary study will be conducted in relation to artificial intelligence used in the financial sector," the monetary policy says, "identifying the risks that may be created and minimizing them, and making the best use of artificial intelligence." will be formulated.'

Recently, the Ministry of Communication and Information Technology also formulated and published a concept paper on AI for the first time in Nepal. The Ministry has prepared a strategic concept paper on AI, including the steps to be taken by the government and all stakeholders for the development, use and regulation of AI. "It was said to encourage AI in the financial sector, but the challenge that comes with it, there should be clarity in the guidance on data protection," says Sanjeev Subba, a financial technology expert. It includes customer privacy, cyber security, data security.'

Similarly, the National Bank has announced to prepare the format of electronic currency. Central banks of various countries are using and testing electronic money as an alternative to paper money or coins that are currently in circulation. Nepal Rastra Bank is also going to take initiative in this regard. Recently, the National Bank of India has published a study report on such currency called Central Bank Digital Currency (CBDC). On the basis of the same report, it is trying to prepare its format to use "Wholesale CBDC".

It is stated in the monetary policy that the format (design characteristics) of wholesale CBDC used in transactions between banks and financial institutions will be prepared. "The central bank will proceed with the preparation of the draft of the wholesale CBDC based on the study on electronic currency," the monetary policy said. The National Bank has been including CBDC issues in its monetary policy for the last three years. Rashtra Bank's 4th strategic plan released in 2078 also mentioned wholesale, retail and cross-border CBDC. Rastra Bank aims to conduct the pilot test of wholesale CBDC in August 2026. It has been said that a decision will be made on retail CBDCs for public use from June 2027 and for cross-border CBDCs in December 2026. Since July 2023, the National Bank has established and operated the CBDC Division under the Payment System Department.

Claiming that there has been significant progress in the modernization of the payment system in recent years, the National Bank has tried to implement a system through monetary policy that the organizations that perform payment, clearing and brokerage operations should be public limited companies. Subba, a financial and technology expert, says that the Rastra Bank has previously aimed to gradually convert payment-related organizations into public limited companies through the 'Permission Policy 2079'. According to him, some companies, including Phone Pay, are preparing to issue an IPO. In the

monetary policy, it is said that the necessary infrastructure and institutional structure will be prepared for the full operation of the National Payment Switch.