Under pressure from govt and investors, NRB raises ceiling on margin loans

Published On: October 6, 2023 09:00 AM NPT By: Republica | @RepublicaNepal

In a new rule, the upper limit of margin loans is Rs 200 million for institutional and Rs 150 million for individual investors

KATHMANDU, Oct 6: Nepal Rastra Bank (NRB) has raised the ceiling on the maximum limit on the loans against shares to Rs 200 million from the existing Rs 120 million.

Issuing a circular on Thursday, the NRB revised the ceiling of the margin loans for both institutional investors and individual investors. In the new provision, the margin loan for a person is now Rs 150 million, according to the central bank. Previously, the maximum limit of margin loans for both individual and institutional investors was maintained at Rs 120 million.

The NRB through its Monetary Policy 2021/22 capped the limit of loans against shares to up to Rs 40 million that is issued by a single bank or financial institution. Similarly, an individual borrower has been allowed to take a maximum of Rs 120 million under this category. The share investors have long been criticizing the policy enforced by the central bank.

With the objectives to break the monopoly of large investors in margin lending, and ensure access of small investors to financial resources to invest in the stock market, the NRB had adopted a policy of 4/12 in the margin nature of share securities loans. “This provision is supposed to minimize the credit risks of such margin nature loans and enhance access to small investors,” NRB had stated in its monetary policy while enforcing the measure.

Yielding to pressure from the government and the investors of the share market, the NRB is said to have taken a flexible policy on revising the upper limit on the margin type loans.

Of late, the country’s secondary market has been posting poor performance. The market index plunged to as low as 1,956.92 points on Thursday. Most of the time, the NRB has been facing criticism regarding its policy for this situation in the stock exchange market.

Although the central bank removed the lower limit through the monetary policy for the fiscal year 2022/23, it had kept intact the upper threshold of Rs 120 million.