NRB allows banks to issue Standby Letter of Credit not exceeding $5 million

KATHMANDU: The Nepal Rastra Bank (NRB) has allowed commercial and development banks to issue Standby Letter of Credit (SBLC) to firm/organizations to operate their business and obtain loan in foreign countries.

The central bank introduced this facility through amendments in the Unified Directives, 2019. Publishing a notice on Tuesday, the NRB informed that any company/organization that has earned foreign currency and wants to operate its business in foreign lands  can obtain the bank guarantee or SBLC from the banks in Nepal.

A standby letter of credit is a bank’s commitment of payment to a third party in the event that the bank’s client defaults on an agreement.

Based on this new provision, Nepali producers and exporters can obtain bank guarantee (bid bond and performance bond or SBLC) for advance payment from the companies in other countries to provide goods or services export from Nepal.

Banks will be responsible for all the liability created after the issuance of SBLC, as per NRB. Meanwhile, NRB has also stated that SBLC can’t be issued to obtain loan in foreign land.

Meanwhile, mount of such guarantee or SBLC will be US$5 million or equivalent other foreign currency, and such amount should not exceed the income of foreign currency of the applicant company in the last five consecutive years.