NRB Unveils Major Policy Tweaks: Margin Lending Relaxed, Contractor Relief Extended, and National ID Rules Eased

In a major regulatory update aimed at boosting credit flow considering excess liquidity in market, addressing liquidity concerns, and simplifying banking compliance, Nepal Rastra Bank (NRB) has issued a new circular amending several provisions within its Unified Directives, 2082.

NRB’s Department of Bank and Financial Institution Regulation, the circular introduces notable changes to margin lending, contractor credit relief, working capital guidelines, vehicle loans, and National ID requirements for bank accounts.

This policy modifications issued to all licensed "Class A", "Class B", and "Class C" bank and financial institutions (BFIs):

1. Share Loan Margin Extended: LTV Ratio for Margin Loans Can Now Reach 80%

In a move that is expected to bring positive sentiment to the stock market, the central bank has relaxed its stance on margin lending.

Previous: BFIs were restricted to issuing loans of a margin lending nature up to a strict maximum of 70% of either the 180-day average closing price of the share or the prevailing market price, whichever was lower.

The New Criteria: While the base cap remains at 70%, BFIs can now increase the Loan - to - Value (LTV) ratio by up to 10 percentage points (reaching 80%) for highly - rated entities.

Added Criteria: To do this, banks must formulate and publish a comprehensive Product Paper on their website evaluating the listed company's strength on six core metrics: paid-up capital size, listing duration, dividend history, credit rating, regulatory compliance, and regular Annual General Meetings (AGMs). Once disbursed, shares still cannot be revalued to increase the limit further.

2. Relief Package for Government Contractors

Recognizing the liquidity crunch faced by construction businesses waiting on public sector clearings, NRB has introduced a temporary lifeline.

New Provision: BFIs are now permitted to reschedule and/or restructure loans of contractors who have pending payments from public bodies.

Set Criteria: Borrowers must submit proof of pending payments and clear at least 10% of the outstanding interest due. The rescheduling must be completed by Ashoj 2083.

BFIs must maintain a 5% loan loss provision on these restructured accounts. However, loans already categorized as Non-Performing Loans (NPL) prior to this will retain their original poorer classification and required provisioning.

 3. One - Year Extension on Working Capital Variance Norms

To give businesses more breathing room to align with strict operational guidelines, NRB has delayed the penalty timeline for working capital loan variations.

The Delay: The enforcement of variance-related provisions under Clause 7 of the Working Capital Loan Guidelines, 2079 (including the Fourth Amendment) has been officially pushed back.

New Timeline: Originally set to go into effect on Shrawan 1, 2083, the enforcement deadline is now extended by a year to Shrawan 1, 2084.

4. Higher LTV Cap for Large Electric Public Vehicles

The central bank continues to champion green energy, expanding its supportive credit rules for electric transit.

The Change: While the maximum LTV ratio for private electric vehicles (EVs) and personal vehicles remains capped at 60%, the central bank has carved out an exception.

The Exception: BFIs can now offer up to 80% financing (LTV ratio) for the procurement of large electric passenger vehicles intended for public transportation. This 80% ceiling also remains applicable for replacing vehicles/equipment damaged in registered public strikes or protests.

5. Flexible Accounting: 15-Day Post-FY Recovery Exception

NRB has made a slight adjustment to how banks book accrued interest income at the end of a fiscal year, giving BFIs a better buffer for their Retained Earnings.

The Adjustment: Under the previous rule, any interest income accounted for on an accrual basis that remained outstanding at the end of the fiscal year had to be entirely debited from Retained Earnings and transferred to the Regulatory Reserve.

The New Relaxed Clause: Outstanding interest that is successfully recovered within 15 days of the fiscal year's end is now exempted from being transferred to the Regulatory Reserve, minimizing immediate pressure on distributable profits.

6. Simplified KYC: National ID Exceptions for Migrants and Children

Addressing massive administrative bottlenecks and public complaints regarding the mandatory National Identity Card (NID) requirement for banking, NRB has rolled out sensible exemptions and extended timelines.

For Non - Resident Nepalese: Citizens residing abroad who open bank accounts online do not need to present an NID or NID number. They may open accounts with other verified documents, provided they update their NID records within 35 days of returning to Nepal.

For Vulnerable Groups & Children: Individuals who are unable to care for themselves, disabled, helpless, or children under the age of 16 are exempt from the mandatory NID requirement and can operate accounts using alternate identification documents.

Self-Declaration Timeline: BFIs have been given until mid-Ashoj 2083 to collect self-declarations from existing account holders regarding their NID status and to update their records via mobile applications or online platforms. For those yet to get an NID, banks are mandated to send automated reminders every six months.

Looking Ahead

This round of circular updates reflects NRB's adaptive regulatory stance. By addressing localized pinpricks such as payment delays for contractors, NID friction for overseas workers, and strict margin lending boundaries the central bank is attempting to grease the wheels of the economy while keeping systemic financial risk firmly in check. BFIs are expected to update their internal Product Papers and KYC systems to implement these changes immediately.