NRB eases priority lending rules, Expands scope to IT, tourism, and export sectors

KATHMANDU: Nepal Rastra Bank has introduced a significant policy shift by widening the scope of priority sector lending and relaxing mandatory loan thresholds for banks and financial institutions, aiming to accelerate credit flow amid rising liquidity in the banking system.

In a circular issued nearly a month after the mid-term review of the monetary policy, the central bank has expanded the definition of priority sectors to include information technology (IT), export-oriented industries, and tourism, alongside existing sectors such as agriculture, micro-enterprises, cottage and small industries, and energy.

Broader Lending Scope to Boost Credit Expansion

The move comes as banks face mounting pressure to deploy excess liquidity. By incorporating IT, tourism, and domestic raw material-based export industries into the priority category, the central bank seeks to stimulate lending in high-growth and foreign exchange-earning sectors critical to Nepal’s economic transformation.

Previously, development banks and finance companies were already mandated to invest in tourism. The updated provision now aligns commercial banks under a broader, more flexible framework.

Revised Minimum Lending Thresholds

The central bank has also recalibrated mandatory lending ratios, providing relief to banks that have struggled to meet earlier thresholds and faced penalties.

• Commercial banks are now required to allocate a minimum of 10 percent of total loans to agriculture by mid-January 2027 (Poush-end 2083 BS).
• This replaces the earlier progressive targets that required banks to increase agricultural lending up to 15 percent by mid-July 2028 (Asar-end 2085 BS).

Importantly, banks exceeding the 10 percent agricultural lending threshold will be allowed to count the excess toward other priority sectors, introducing operational flexibility.

Unified Target for Priority Sectors

From mid-January 2027, banks must ensure that at least 20 percent of their total loan portfolio is directed toward priority sectors, now defined as:

• Tourism
• Micro, cottage, small and medium enterprises (MSMEs)
• Energy
• Information technology
• Export-oriented industries

Loan caps have also been specified:

• Up to Rs 30 million for MSMEs
• Up to Rs 50 million for productive industries

This restructuring is expected to reduce compliance pressure and minimize penalties that banks had been incurring for failing to meet rigid thresholds. Notably, even global lenders like Standard Chartered Bank had previously faced regulatory fines under the older framework.

Extension of Loan Trading Window for Infrastructure Banks

In a parallel policy update, the central bank has amended the “Unified Directive, 2025” for infrastructure development banks, extending the deadline for loan sale, purchase, and takeover provisions until mid-July 2028 (Asar-end 2085 BS).

Under the revised rules:

• Infrastructure banks can continue inter-bank loan trading among themselves.
• Well-capitalized infrastructure banks are now allowed to acquire project loans from Class ‘A’ commercial banks, subject to conditions.
• The transaction cap is set at one-third of the total outstanding loan portfolio of the previous quarter.

Previously, such provisions were limited to the first four years of a bank’s operation. The new timeline introduces clarity and extends operational flexibility.

Strategic Implications for Nepal’s Economy

The policy is widely viewed as a targeted intervention to:

• Improve credit absorption in key sectors
• Support large-scale infrastructure financing
• Enhance liquidity management across banks
• Facilitate financial restructuring of capital-intensive projects

Sectors such as hydropower, roads, and water resources—where long-term financing remains a structural challenge—are expected to benefit from improved credit mobility and risk-sharing mechanisms.

The central bank’s latest measures signal a calibrated shift toward a more flexible and growth-oriented credit policy framework, aligning financial sector regulation with Nepal’s evolving economic priorities.