NRB's Directive Permit Promoters to Borrow from Own Institutions; Tighter Controls on Pledged Share Sales, Including Unlisted Shares as Collateral

Nepal Rastra Bank (NRB) has implemented a new directive allowing promoters and major shareholders to obtain loans from their own financial institutions, but under clearly defined conditions. This revision marks a shift from the previous blanket prohibition on such practices.

Under the new regulation, promoters holding more than 0.5% of the institution’s paid-up capital, as well as general shareholders with 1% or more ownership, along with directors, executive officers, and their immediate family members, are prohibited from pledging their assets as collateral for loans from the same institution. This regulation places a cap on the shareholding threshold, ensuring that loans can only be taken under specified limits.

Previously, the restriction barred promoters, directors, executive officers, and their family members from using their assets as collateral in their affiliated institutions, regardless of their shareholding percentage. The new directive, however, provides a more flexible framework by setting these thresholds, allowing such loans under controlled circumstances.

In addition to the new collateral rules, NRB has also strengthened the regulations surrounding the sale of pledged shares. Financial institutions are now required to explicitly state in their loan product documents the procedures for margin calls and the sale of shares to recover debts if the borrower fails to provide additional collateral.

The updated guidelines also include a provision allowing unlisted rights and bonus shares to be treated as collateral, even before they are officially listed, in the event of a margin call. Banks and financial institutions are further required to monitor the value of pledged shares, notifying borrowers if market fluctuations affect the value of their collateral and if additional security is necessary.