KATHMANDU, Oct 10: Nepal Rastra Bank (NRB) has tightened the noose against banks and financial institutions (BFIs) for issuing loans against collateral of shares and bullion.
By amending the Unified Directives 2023 on Tuesday, the apex monetary authority has asked the BFIs to clearly specify on their product papers the conditions while issuing loans against shares. Provided the market value of securities fall due to a heavy decline in valuation of shares, BIFs will have to make margin calls and ask their clients to maintain additional securities. If the clients fail to do so, the BFIs can recover their credit amount by selling the shares they accepted as collateral.
Likewise, general shareholders who hold shares of one percent or more of the paid-up capital of any BFIs have been barred from taking loans from the same institution. In addition, the central bank has also barred directors, chief executive officers and their immediate family members from obtaining loans from the same bank. Previously, there was no such threshold for the borrowers who fall in this category.
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Similarly, individuals holding promoter shares of more than 0.5 percent of the BFIs’ paid-up capital will also be ineligible to obtain loans from the same bank. However, the BFIs can provide such shareholders or directors with the facilities like 100 percent cash margin guarantees, credit card facilities up to the limits set by the respective institutions, and issuing loans against their fixed deposits as well as bonds issued by the government and the central bank.
The BFIs are required to submit details of the shareholders with more than 0.5 percent of shares to the relevant supervision department of the NRB on a semi-annual basis.
In addition, the central bank has fixed the ceiling of the loans against gold and silver at Rs 5 million. The BFIs that have issued such loans beyond the new limit will have to bring it under the prescribed ceiling by mid-July 2026.
From now on, the BFIs will have to adopt Nepal Financial Reporting Standards while estimating the liabilities related to insurance of their staff. “The actuarial valuation must be ascertained only after the financial details being approved by the internal audit developed under the set standards,” read the NRB directives.
In the new provision, the BFIs will have to maintain information officers in their provincial and branch offices. As of now, there is no such mandatory provision in the line while a number of BFIs have been maintaining their information officers only at their head offices. Aiming to enforce the fundamental right to information to the general public, the NRB has sought to implement the law from all the major outlets of the BFIs.
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