Can I Only Take Rs 50 Lakh Margin Loan Now?

We have seen that most investors were surprised by the provision in the directive forwarded by Nepal Rastra Bank yesterday.

Investors had gladly welcomed the provision to increase the percentage of a margin loan to 70% of the value of shares owned. However, most investors were baffled by the provision that limited the maximum amount of margin loan to Rs. 50 lakhs. This was seen as a counterstatement to the initial provision.

However, it seems that the provision was misinterpreted by common investors. Some of the news portals had incorrectly misinterpreted the news as well.

We analyzed the issue and contacted Nepal Rastra Bank to clarify the situation.

Apparently, it was clearly mentioned that the aforementioned provision was only for those who take margin loans for other unspecified purposes. This included taking loans for personal utilities other than reinvesting in the stock market itself.

If investors do not specify the purpose of the loan they take against their shares, only up to Rs. 50 lakhs can be taken as a margin loan.

Note that this is not a problem for those who want to reinvest their margin loan in the stock market itself. The Rs. 50 lakh limit is only for those who want to use the amount for miscellaneous and unspecified purposes. According to the directive, any margin loan taken with unspecified purposes should be brought within the limit by the end of Ashad, 2079.

Sharesansar contacted Dr. Gunakar Bhatta, Spokesperson and Information Officer of Nepal Rastra Bank on why this provision was brought to effect.

His formal response on it was:

1) This provision was made to discourage the misuse of margin loans. This is done to encourage investors to invest in the stock market itself.

2) When investors do not specify a reason for the loan, it is unclear where the fund was directed in the economy. So, NRB has done this to promote transparency in the movement of capital.

Thus, if investors are looking to reinvest the loan in the stock market itself, they can still take up to 70% of the value of their total shares. The shares are valued at the least price, whether the Last Traded Price or the average of the last 120 days' prices.