NRB made adjustments to the cap on working capital loans intended for manufacturers

KATHMANDU: Under the revised regulation, manufacturing entities are now eligible to access working capital loans of up to Rs 30 million, a notable increase from the previous limit of Rs 10 million. This change stems from the NRB’s revision of the Working Capital Loan Guidelines 2022, which demonstrates the central bank’s flexibility on the matter.

This change comes in response to persistent calls from the private sector urging the NRB to abolish the existing guidelines since their implementation.

Working capital loans play a crucial role in funding a company’s day-to-day operational needs, without being allocated for acquiring long-term assets or investments. These loans include various types such as cash credit, short-term loans, import-export-related loans, and term loans, which Nepali banks extend to eligible businesses.

In a recent circular published on Monday, the central bank has extended support to the manufacturing sector, a move that injects momentum into the nation’s productive division.

As per the NRB’s stipulations, these conditions apply specifically to industries that enhance the value of raw materials or semi-finished products through either human labor or machinery.

For businesses within the productive sector with annual turnovers surpassing Rs 30 million but not exceeding Rs 40 million, it is recommended that they consider an amount equal to 20 percent of their turnover when calculating their working capital loan requirements. A similar principle will be applicable to loans exceeding Rs 10 million and up to Rs 20 million for other sectors.

In addition to the vital support provided by the central bank to bolster the manufacturing sector, it’s imperative for businesses to also navigate the tax landscape effectively. The allocation of working capital loans must consider not only operational needs but also tax obligations such as Value Added Tax . Given the dynamic nature of business operations, prudent management entails factoring in tax liabilities within the working capital framework. By incorporating VAT considerations into their financial planning, businesses can ensure smoother cash flow management and compliance with regulatory requirements, thus sustaining their operational vitality in tandem with the support extended by financial institutions and regulatory authorities.

Banks have been granted the authorization to provide working capital loans amounting to as much as 50 percent of the maximum annual turnover, depending on the specific industry, business, or operational cycle of the companies involved. This marks an increase from the previous threshold of 40 percent.