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NRB’s New Circular: Share-Backed Loan Limit Removed, Banks Can Sell Shares Within Six Months

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NEPSE TRADING

NRB’s New Circular: Share-Backed Loan Limit Removed, Banks Can Sell Shares Within Six Months

Kathmandu — Nepal Rastra Bank (NRB) has issued a new circular removing the Single Obligor Limit on share-backed loans and allowing banks and financial institutions to sell pledged shares within six months. The new directive, published by NRB’s Bank and Financial Institution Regulation Department, amends the Unified Directive 2081 (2024).

  1. Share-Backed Loan Cap Removed
    – Previously, an individual borrower could obtain a maximum of NPR 250 million (Rs. 25 crore) in total share-backed loans from all banks combined.
    – This ceiling has now been completely removed, giving banks the flexibility to lend based on their own risk assessments.

  2. Banks Allowed to Sell Pledged Shares Within Six Months
    – Banks can now sell pledged shares, debentures, or other investment instruments within six months to manage risks and liquidity more effectively.
    – This provision enhances banks’ ability to liquidate securities to recover dues in a timely manner.

  3. Integration With Digital Payment System
    – The directive instructs banks to use the Payment Switch mechanism for any investment or share-related transactions between institutions, promoting transparency and system integration.

  4. 20% Investment Restriction Removed
    – The earlier 20% limit on investments exceeding one year has also been lifted, granting banks greater investment flexibility.

The Capital Market Reform Taskforce, formed by the Ministry of Finance, had recently recommended that NRB lift the cap on share-backed loans. Following this recommendation, NRB officially implemented the change through this latest circular.

According to NRB, the move aims to boost liquidity, expand credit flow, and strengthen Nepal’s capital market.

  • Investors can now take larger share-backed loans depending on their collateral value.

  • Increased liquidity and trading volume are expected in the stock market.

  • Banks gain flexibility in managing share-backed risks through timely sale of pledged shares.

  • However, analysts caution that unrestrained credit growth could increase market volatility.

NRB’s new directive is a landmark policy shift that aligns the banking and capital markets. While it offers greater flexibility and liquidity, prudent risk management by both banks and investors will be crucial to ensure market stability.

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