NRB tightens margin lending

Nepal Rastra Bank, the central bank, has tightened the credit limit against the collateral of stocks. As per the latest provision of NRB, banks and financial institutions (BFIs) can issue only 50 per cent of the value of stocks as loan, which is calculated on the basis of the average value of the last 180 days published by the stock exchange or the prevailing price of the stock, whichever is lower. Earlier, BFIs were allowed to issue loans of up to 60 per cent of the total value of stocks by abiding to a similar value calculation method. BFIs are restricted to float loans of over 20 per cent of the tier-1 capital against stocks of listed companies. NRB has tightened credit against the collateral of stocks, also known as margin lending, through the Monetary Policy 2016-17. To execute the provision, NRB issued a circular to the licensed institutions today. As per the circular, BFIs cannot issue additional loans by reevaluating the stocks that have already been pledged as collateral. The central bank has introduced a similar provision for promoter shares too. Promoter shares are also valuated based on the prices of the ordinary stocks of the concerned companies in the stock market. Against the collateral of promoter shares too, valuation will be carried out in a similar manner as that of ordinary shares and only 50 per cent of the total value of stock can be floated as credit, as per the NRB circular. Similarly, BFIs have been directed to float loans worth only 50 per cent of fair market value against the collateral of commercial real estate. However, against the collateral of residential real estate, BFIs will be allowed to float loans of up to 60 per cent of the fair market value of such property. As announced in the Monetary Policy, the central bank has barred BFIs from making cash payments of over Rs three million. For amounts of over Rs three million, they are now obliged to make payments through cheques. Earlier the ceiling for cash payment stood at Rs five million. Cheques issued in the name of firms, companies, organisations, institutions and offices must mandatorily be account payee cheques as per the recent directive. NRB has also directed BFIs to issue loans under refinancing facility of NRB at four per cent interest rate for the construction of well-facilitated tourist standard hotels in the potential areas of the country namely, Pathibhara, Maipokhari, Halesi, Langtang, Sworgadwari, Upper Mustang, Gadhimai, Janakpurdham, Rara and Khaptad. Apart from this, those involved in commercial ostrich farming, cardamom cultivation and bee farming and exporting related products can borrow equivalent amount to their export earnings at one per cent interest rate from the BFIs under refinancing facility of NRB. Source: The Himalayan Times