NRB allows banks to extend permanent working capital loans beyond 10 years

Kathmandu: Banks and financial institutions in Nepal will now be allowed to provide permanent working capital loans for periods longer than 10 years, following a policy change announced in the mid-term review of the monetary policy by Nepal Rastra Bank.

Previously, banks were required to issue permanent working capital loans with repayment periods ranging from three to ten years. The revised provision removes that ceiling and allows banks to determine the loan tenure based on actual financing needs. According to the updated directive, banks and financial institutions must provide term-based loans to meet permanent working capital requirements, and the repayment period will now be determined according to each institution’s internal working capital lending policy.

The amended rules also allow previously issued working capital loans to be restructured once until mid-July 2026 (end of the Nepali fiscal year 2082/83), based on an assessment of the borrower’s cash flow and financial statements. Such restructuring will not be treated as loan rescheduling for the purposes of loan classification or provisioning for potential losses.

The central bank has also revised another key requirement related to working capital lending, particularly for cash credit loans. Under the previous rule, borrowers had to reduce their outstanding balance to less than 10 percent of the sanctioned limit for at least seven consecutive days once during the fiscal year to demonstrate loan repayment. The new rule relaxes this threshold, requiring the balance to fall below 30 percent instead.

Additionally, banks will now have to incorporate clearer frameworks in their working capital lending policies. These policies must determine the appropriate tenure for term loans provided as permanent working capital based on factors such as the nature of the enterprise or business, the sector it operates in, its cash flow, and broader working capital analysis. Banks will also need to define sector-specific minimum and maximum loan tenures within their internal policies when extending such financing.