NRB tightens cooperative lending: 3-month membership required for loans

KATHMANDU: Nepal Rastra Bank (NRB) has introduced comprehensive guidelines to regulate savings and credit cooperative institutions, effective immediately, under the “Directives and Standards for Cooperative Institutions Engaged in Savings and Credit Transactions 2081.” The new standards set a maximum interest rate spread of 6 percent between savings and loans and cap unsecured loans at NPR 5 lakh (500,000 rupees). These measures aim to strengthen financial discipline and protect members of such cooperatives across Nepal.

According to the guidelines, cooperatives are prohibited from lending to members who have been enrolled for less than three months. The maximum loan amount per member is restricted to 15 percent of the institution’s primary capital. For unsecured loans, active savers can borrow up to five times their savings or NPR 5 lakh, whichever is lower, provided at least two members act as guarantors. Beyond loans secured by their savings, members are barred from accessing additional credit.

Investment options for cooperatives are limited to shares of cooperative banks, small farmer microfinance institutions, and government-issued bonds. Investments in shares or debentures of other entities are prohibited, though contributions to membership fees under the Cooperative Act, 2074, remain permissible.

The guidelines mandate that large-scale cooperatives (excluding specialized ones) allocate at least 50 percent of their total loans to productive sectors such as agriculture, industry, and business development. Institutions failing to meet this requirement must comply by mid-July 2026 (Asar 2083). Loans for these purposes can include a grace period tailored to the project’s needs, approved by the cooperative’s board. However, post-grace period installments cannot exceed a three-month gap.

For loans secured by savings, cooperatives can lend up to 90 percent of the deposited amount. In the case of immovable property as collateral, loans can reach 60 percent of the valuation in metropolitan and sub-metropolitan areas and 70 percent in municipalities and rural areas. Loans must be secured by the borrower’s or their immediate family’s assets, with pre-existing loans against third-party collateral required to be regularized by mid-July 2026.

Project-based loans are capped at 80 percent of the total project cost, disbursed in installments, while loans against members’ shareholdings are not permitted. Cooperatives can, however, finance viable projects with phased disbursements based on progress, using the project itself as collateral.

Loans are classified as active (overdue by less than three months or secured by savings) or non-performing, with the latter subdivided into substandard (3-6 months overdue), doubtful (6-12 months), and bad (over 12 months). Corresponding provisions for potential losses are outlined in the standards.

On the deposit side, cooperatives can only collect savings from members, up to 15 times their primary capital fund. They may borrow up to 5 percent of their total assets from banks, financial institutions, or cooperative banks, not exceeding 100 percent of their capital fund. Cooperatives relying on group guarantees for over 51 percent of investments can borrow up to 20 percent of assets or 10 times their capital fund, whichever is lower.

Deposit limits vary by operational scope: NPR 10 lakh per member for single-district cooperatives, NPR 25 lakh for multi-district ones, and NPR 50 lakh for those spanning multiple provinces. Savings accounts can be regular, periodic (up to three years), or general, with regular savings constituting at least 25 percent of the total. Interest rates, penalties, and administrative fees must be approved by the cooperative’s board and general assembly.

The NRB’s move follows the government’s ordinance in early January, which established the Cooperative Regulatory Authority to oversee cooperatives and address issues like sunken savings, replacing the National Cooperative Development Board Act, 2049. The authority inherits the board’s assets, liabilities, and staff, signaling a robust push toward stricter oversight of the cooperative sector.