Nepal Rastra Bank Adjusts Share Loan Limits Amidst Market Challenges

KATHMANDU: In the previous fiscal year’s monetary policy, Nepal Rastra Bank (NRB) lifted the limit of NPR 40 million that a single household could borrow from one financial institution but maintained the cap of NPR 120 million on total borrowings from the entire banking system.

Despite higher liquidity in the banking system, NRB remained inflexible, leading to widespread opposition. As a result, NRB issued a unified directive on Ashwin 18 (October 4) last year, allowing individual investors to borrow up to NPR 150 million and professional investors up to NPR 200 million from the banking system.

Following the issuance of this directive, NRB did not amend the share loan limits in any of the subsequent monetary policies for the year. The imposed limits on share loans had caused a significant decline in the stock market, with the market index dropping nearly 1,000 points.

Key Highlights:

1. Policy Adjustments: NRB removed the NPR 40 million limit on individual household borrowings from a single bank but continued the NPR 120 million cap across the entire banking system. This adjustment was made to address the liquidity concerns within the banking sector.

2. Unified Directive: On October 4, NRB issued a unified directive allowing individual investors to borrow up to NPR 150 million and professional investors up to NPR 200 million. This was in response to the growing demand for more flexibility in the capital market.

3. Market Impact: The rigid share loan limits had a significant adverse impact on the stock market, contributing to a substantial decline in the market index by nearly 1,000 points. The inability to adjust the limits further led to criticism from various stakeholders.

4. Liquidity Concerns: Despite the increased liquidity in the banking system, NRB’s inflexibility regarding share loan limits fueled widespread opposition. The directive aimed to strike a balance between investor needs and regulatory controls.

5. Future Prospects: As NRB continues to monitor the impact of these policies, there is anticipation that further adjustments may be made to support the capital market and address investor concerns.

The recent changes and the ongoing regulatory approach by NRB highlight the challenges faced in managing share loan limits and their broader implications on Nepal’s stock market.