Fiscal Nepal
First Business News Portal in English from Nepal
KATHMANDU: Nepal Rastra Bank’s (NRB) tough stance on overdraft (OD) lending has led to a steep contraction in such loans across commercial banks, with the central bank hailing the decline as a corrective step against misuse of the facility in unproductive sectors like stock trading and real estate.
Overdraft loans, once easily accessible without stringent income proof and heavily diverted to consumption, housing, and speculative investments, are now restricted to business-related purposes only. NRB has capped the OD limit at a maximum of 50% of verified income sources, enforcing stricter monitoring to ensure loans are used for essential and productive activities.
According to NRB data, as of the end of Ashadh 2081 BS (mid-July 2024), the outstanding overdraft loan portfolio fell by around 6% year-on-year, shrinking from Rs 92.01 billion to Rs 86.61 billion. This translates into a reduction of Rs 5.40 billion in just one year.
Of the 20 commercial banks, only seven registered growth in overdraft loans, while 12 banks recorded significant contraction. Agriculture Development Bank emerged as the largest player, expanding its OD lending by 44.58% to Rs 18.60 billion. Machhapuchchhre Bank also posted a nearly 10% rise, reaching Rs 1.04 billion. Nepal Bank, NIC Asia, Prime Commercial, Rastriya Banijya, and Everest Bank saw marginal increases of under 5%.
However, the majority of banks reported sharp declines. Kumari Bank witnessed the steepest drop, with OD loans tumbling 63.68% from Rs 7.24 billion to just Rs 2.63 billion. Prabhu Bank followed with a 62.20% decline, down to Rs 1.07 billion from Rs 2.84 billion. Nepal SBI Bank saw a contraction of 48.39%, while Laxmi Sunrise, Himalayan, and Sanima Bank posted reductions between 20–30%.
Standard Chartered, Citizens, Nepal Investment Mega, and Siddhartha Bank also experienced decreases ranging from 10–20%, whereas Global IME and NMB reported declines of under 5%.
In terms of absolute size, Agriculture Development Bank leads the market with Rs 18.60 billion in overdraft lending, followed by Prime Commercial at Rs 9.70 billion, Global IME at Rs 9.09 billion, and Nepal Bank at Rs 7.27 billion. Rastriya Banijya Bank (Rs 5.81 billion), Citizens Bank (Rs 5.48 billion), and NMB Bank (Rs 5.41 billion) are also among the top lenders. At the lower end, Sanima, Nepal SBI, and Standard Chartered have OD portfolios below Rs 1 billion.
Regulators argue that the contraction reflects success in curbing “overuse” of overdraft facilities that were distorting liquidity flow and inflating speculative activities. By forcing banks and borrowers to align OD lending with genuine income and business needs, NRB aims to channel credit toward productive sectors, boosting investment in manufacturing, agriculture, and real economy activities.
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