26th September 2025, Kathmandu
A high-level task force, appointed by the government to propose reforms for Nepal’s capital market, has submitted a pivotal report that recommends the removal of the NPR 250 million lending cap on share-backed loans.
Lending Cap Removal Recommendation
This major recommendation, along with several other key proposals, is a direct and ambitious effort to improve market liquidity, restore investor confidence, and encourage greater participation from both institutional and retail investors. The report was officially submitted on Ashwin 9, 2082 (September 25, 2025), to the Finance Minister, marking a significant step towards addressing the long-standing challenges that have plagued the country’s stock market, particularly the issue of low liquidity and declining investor morale. This comprehensive move is seen as a crucial part of a broader strategy to modernize Nepal’s financial market and align it with global best practices.
The Task Force and Its Mandate
The task force, formed on Ashwin 3, 2082, was a collaborative effort involving key stakeholders from the financial sector. It was led by Rupesh KC, the acting executive director of the Securities Board of Nepal (SEBON), the apex regulatory body for the securities market. The committee included other high-ranking officials such as Sharan Adhikari, director of the Nepal Rastra Bank (NRB), and Niranjan Phuyal, acting executive director of the Nepal Stock Exchange (NEPSE). This cross-institutional representation was vital to ensure that the recommendations were comprehensive and considered the perspectives of all major players in the financial ecosystem—from the central bank to the market regulator and the stock exchange itself. The primary purpose of the committee was to address the structural issues that have constrained the growth of Nepal’s capital market, with a particular focus on the long-criticized lending cap that has been blamed for hindering market depth and large-scale investments.
Key Recommendations for Market Revitalization
The report contains a series of strategic recommendations designed to modernize and liberalize the capital market:
- Elimination of the Lending Cap: The most significant recommendation is the removal of the NPR 250 million limit on share-backed loans. The task force argues that this cap restricts the ability of banks and financial institutions to lend based on collateral value and risk assessment, thereby hindering large transactions. Removing the cap would allow for more flexible lending and could potentially attract significant institutional investment, which is crucial for market depth and liquidity.
- Removal of One-Year Holding Period: The task force has proposed doing away with the requirement for banks and financial institutions to hold shares and bonds of listed companies for at least one year. This change would allow these institutions to participate more actively in the market and engage in strategic, short-term investments, which would enhance overall market activity and liquidity.
- Grace Period for Interest Payments: To provide immediate relief to investors, the committee has suggested a grace period for margin loan interest payments. Borrowers would be allowed to pay any interest due by the end of Ashwin 2082 by Poush 2082 without incurring any penalties. This measure is expected to help investors manage their cash flow during periods of market stress and volatility.
- Margin Trading Through Brokers: The report recommends a shift towards a more transparent and efficient system by allowing licensed brokerage firms to conduct margin trading. This is a crucial step towards modernizing the market, as it would streamline the trading process and provide a more structured framework for leveraging.
- Unified Investor Identification Numbers (IIN): The task force has called for the implementation of a single, unified standard for Investor Identification Numbers (IIN) across all market participants. This would simplify administrative processes, reduce errors, and improve the overall efficiency of the trading system.
- New Benchmark Index: Recognizing the limitations of the current NEPSE index, which includes all listed equities, the committee has proposed the creation of a new, more representative benchmark index. This index would be based on a select group of highly liquid and tradable shares and would serve as the basis for circuit breaker rules, making market halts more responsive to real-time market conditions.
- Clarification on Capital Gains Tax: The task force has recommended that capital gains tax on non-business share transactions be treated as the final tax liability. This clarification is expected to simplify compliance for investors and reduce ambiguities, making the market more attractive.
Expected Impact and Next Steps
If these recommendations are implemented, market analysts predict a significant improvement in Nepal’s capital market. The removal of the lending cap is likely to be a major catalyst, attracting larger players and increasing market liquidity. The allowance for institutional investors to engage in short-term investments and the introduction of margin trading through brokers would also contribute to a more dynamic and sophisticated market. The Ministry of Finance will now review the report and conduct consultations with various stakeholders before deciding on the implementation of these proposals. While some measures could be implemented quickly, others, such as the new benchmark index and the margin trading framework, may require more time and regulatory adjustments. Overall, this initiative represents a concerted effort by the government to address the deep-seated issues in the capital market and steer it towards a path of sustainable growth. The recommendations, if adopted, could mark a new era for Nepal’s financial sector, boosting investor confidence and strengthening the role of the stock market in the national economy.
For More: Lending Cap Removal Recommendation