KATHMANDU, Dec 28: The government has been urged to adopt a series of measures aimed at facilitating Non-Resident Nepalis (NRNs) to participate in Nepal’s secondary share market, as the country’s only stock exchange struggles to retain investor interest.
The recommendation comes from the ‘Banking Sector Reform Recommendation Task Force,’ which submitted a report to Nepal Rastra Bank (NRB) last week outlining 10 key reform steps for the sustainable development of the capital market. Among the suggestions is the central bank’s withdrawal from the board of the Nepal Stock Exchange (NEPSE), citing a conflict of interest.
The task force has also called for the easing of banking and foreign exchange regulations to encourage NRN participation. Capital gains taxes, currently much higher for NRNs than for domestic investors, were highlighted as a major deterrent. Under existing rules, NRNs pay 10 percent on short-term investments and 25 percent on long-term holdings, compared with 5 percent and 7.5 percent, respectively, for Nepali investors. The report recommends aligning these rates to ensure fairness and promote greater foreign participation.
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In recent years, the Securities Board of Nepal (SEBON) allowed NRNs to trade IPOs of at least 1,000 units under the Securities Issuance and Distribution Directive (Eighth Amendment) 2024, though such shares can only be traded among NRNs and cannot be sold for one year. Rights shares held by NRNs are also restricted to intra-NRN transfers. NRB eased rules last year by allowing simpler fund transfers and the use of NPR accounts for investments, yet these measures have so far failed to attract significant investment from NRNs.
The task force report also stressed global best practices, recommending that commercial banks prioritize margin lending through brokers rather than directly and allow banks and financial institutions (BFIs) greater autonomy in lending against shares. Sectoral limits should be set for share lending, but technical and managerial tasks should be relaxed to enhance efficiency.
Other recommendations include implementing the Regulatory Adjustment Framework of the Basel Committee on Banking Supervision to maintain banking system stability, and preparing a 10-year plan to convert promoter shares of BFIs into ordinary shares, as outlined in the BFIs Act.
Additionally, the report emphasized stronger enforcement of the Prevention of Money Laundering Act and the Central KYC system to remove Nepal from the Financial Action Task Force’s grey list. Reducing the cash transaction limit from Rs 1 million to Rs 100,000 was also suggested to curb illicit flows and enhance compliance.
The task force’s recommendations aim to boost investor confidence, encourage NRN participation, and modernize Nepal’s capital market infrastructure.
