Nepal Rastra Bank is preparing to relax the mandatory one-year holding period for bank and financial institutions (BFIs) on share investments, with a possible reduction to 90 days.
Nepal Rastra Bank (NRB) is set to introduce policy changes to make it easier for banks and financial institutions to invest in the stock market. At present, BFIs are allowed to sell shares only after holding them for one year. This restriction has limited their active participation in the capital market, as predicting market conditions after one year is difficult.
An executive director at NRB confirmed that the central bank is reviewing options, including either fully removing the restriction or allowing sales after 90 days (three months). A final decision, however, has not yet been made. The central bank has concluded that the earlier policy—introduced to limit BFI exposure during a highly volatile market—now requires revision in line with current conditions.
Circular of Jestha 11, 2078
On Jestha 11, 2078, NRB issued a circular that banned short-term investments by BFIs in the stock market. Commercial banks, development banks, and finance companies were allowed to invest in institutional shares and debentures only for more than one year. The same circular also prohibited them from investing in microfinance institutions’ shares.
In addition, the circular set strict sale conditions: even after holding shares for one year, BFIs could only sell up to 1% of their core capital per fiscal year. Furthermore, shares purchased before Jestha 11 were instructed to be sold by the end of Ashad. BFIs were also directed to fully exit from microfinance shares by the end of Poush 2078.
This policy effectively forced banks and financial institutions to exit the stock market. Before the circular’s formal announcement, NRB officials had already advised BFI representatives that the market was in a “bubble” and could burst at any time. When the circular was introduced, the NEPSE index was around 2,850 points, later climbing to 3,227 points before falling sharply to 1,800 points. One of the main triggers of this correction was NRB’s tightening of share-backed loans (maximum NPR 4 crore per bank and NPR 12 crore from all BFIs combined).
Policy Revision in FY 2080/81
Following strong requests from BFIs, NRB eased the restrictions in the third quarterly review of FY 2080/81. Under the revised provision, BFIs were allowed to sell up to 20% of their core capital from investments that had completed the one-year holding period.
This revision was aimed at encouraging greater market participation, as BFIs had significantly reduced their holdings due to the earlier restrictions and were reluctant to invest even when the NEPSE index had dropped to around 1,800 points.
This article was originally published on https://bajarkochirfar.com. Translated with the help of AI and reviewed by our editorial team.
