NRB’s Three Major Reforms: Share Loan Cap Removed, Holding Period Cut, and Sale Restriction Lifted

Nepal Rastra Bank (NRB) has announced three landmark policy reforms through a new circular that is expected to reshape the country’s capital market and banking investment framework. The central bank has removed the individual limit on share mortgage loans, reduced the mandatory share holding period for banks and financial institutions (BFIs), and scrapped the annual sale restriction tied to primary capital.

Share-Backed Loan Limit of Rs 250 Million Removed

In a significant policy shift, NRB has lifted the ceiling that limited investors from taking more than Rs 250 million in share-backed loans from all banks combined. Previously, individuals or institutions could not borrow more than Rs 250 million, even if they had collateral across multiple banks and financial institutions.

With the new provision, there is no upper limit on how much an investor can borrow against share collateral. The move is expected to benefit high-net-worth individuals, institutional investors, and brokerage-backed traders, who can now access larger financing based on the value of their securities and the lending bank’s internal risk assessment.

Experts say this reform will increase liquidity in the market, as more funds could flow into share trading and investment activities. However, NRB has made it clear that banks must adhere to existing loan-to-value (LTV) ratios, risk management standards, and internal exposure norms to prevent excessive risk-taking.

BFIs Allowed to Sell Shares After Six Months

NRB has also reduced the mandatory holding period for banks and financial institutions that invest in listed company shares. Under the previous rule, BFIs were required to hold such shares for at least one year before selling them. The new directive has shortened the period to six months.

The policy change gives banks more flexibility to manage and rebalance their investment portfolios in response to market conditions. Financial analysts believe this will help institutional investors act more dynamically, allowing them to take profits or cut losses sooner.

“This reform introduces flexibility and promotes more efficient portfolio management among banks,” said a capital market analyst. “It could also encourage greater participation of institutional investors in the secondary market.”

20 Percent Annual Sale Restriction on Primary Capital Removed

Previously, even after the mandatory one-year holding period, banks were allowed to sell only up to 20 percent of their paid-up (primary) capital worth of shares each fiscal year. The new circular completely removes this restriction, giving banks and financial institutions the freedom to sell any portion of their investment once the six-month holding period has passed.

This move is expected to make the equity market more liquid, as institutions can now freely adjust their holdings without being bound by annual limits. The decision also aligns NRB’s regulations more closely with modern investment practices, where institutions manage risk dynamically rather than through fixed quotas.

The trio of decisions announced by NRB is widely seen as an effort to revitalize Nepal’s sluggish capital market. The share-backed loan liberalization could inject much-needed liquidity into the financial system, while shorter holding periods and the removal of sale limits are expected to stimulate trading activity on the Nepal Stock Exchange (NEPSE).

According to market observers, these measures could restore investor confidence and attract institutional investors who had previously been deterred by rigid investment restrictions. However, the central bank will still need to monitor potential over-leveraging and speculative movements that could arise from increased credit availability.

Economists describe NRB’s latest circular as a progressive step toward modernizing Nepal’s financial and investment ecosystem. By easing outdated restrictions, the central bank has signaled its intent to balance prudential regulation with capital market development.

If implemented responsibly by the banking sector, the reforms could mark a turning point for Nepal’s capital market — fostering liquidity, improving institutional participation, and encouraging long-term confidence among investors.