New NRB Directive: Shorter Holding Period, Easier Exit, Stronger Disclosure for BFIs

The Nepal Rastra Bank (NRB) has announced a comprehensive reform through its Unified Directive 2082 (2025 AD), fundamentally reshaping how banks and financial institutions (BFIs) manage their investments. The latest directive introduces three major reforms — a shorter investment holding period, removal of exit restrictions, and stronger disclosure requirements — designed to make Nepal’s financial system more dynamic, transparent, and responsive to market realities.

1. Shorter Holding Period – 6-Month Rule Introduced

NRB has reduced the minimum investment holding period for BFIs from one year to six months for investments in listed shares and debentures.
Under the new rule:

“Banks and financial institutions may invest in shares and debentures of organized institutions listed in the stock exchange for a period of not less than six months. No short-term investment shall be made in such securities.”

This marks a major policy relaxation, allowing BFIs to rebalance and liquidate their portfolios faster without being bound by the earlier one-year lock-in. The six-month period ensures sufficient investment stability while providing greater operational flexibility and improved liquidity in the secondary market.

2. Easier Exit – 20% Annual Sale Restriction Removed

Previously, BFIs were allowed to sell only up to 20% of their investment in a given fiscal year, even after the holding period expired. This outdated restriction limited portfolio rebalancing and discouraged active investment management.
Under Directive 2082, this restriction has been completely abolished — meaning BFIs can now freely sell, adjust, or reallocate their investments based on market conditions, risk exposure, and liquidity needs.
This change is expected to increase institutional participation, boost NEPSE liquidity, and promote more efficient capital movement across financial sectors.

3. Stronger Disclosure and Compliance on Unlisted Investments

While flexibility has been granted for listed securities, NRB has tightened control over unlisted investments.
If BFIs invest in unlisted shares or debentures, such instruments must be listed within three years from the date of investment.
If listing does not occur, the bank must transfer an equivalent amount from retained earnings to an “Investment Adjustment Fund (IAF)”, which cannot be used until listing takes place.

This ensures better disclosure, transparency, and accountability, preventing institutions from holding risky, illiquid, or opaque assets for prolonged periods. The fund also serves as a regulatory safeguard against potential losses in unlisted securities.

Policy Impact – Liquidity, Flexibility, and Market Confidence

NRB’s reform represents a balanced and forward-looking shift in financial regulation. By combining shorter holding periods with freer exit rules, the central bank aims to create a more liquid, transparent, and market-driven investment environment.
Key anticipated impacts include:

• Increased liquidity and trading volume in the secondary market (NEPSE).

• Enhanced institutional participation in equity and debt markets.

• Strengthened corporate governance through transparent investment reporting.

• Improved risk management and efficient capital utilization by BFIs.