SEBON Underwriting Limit Increase: Bank Insurance Merchant Banks Nepal Capital Market
24th March 2025, Kathmandu
The Nepal Securities Board (SEBON) has increased the underwriting limit for merchant banks. This decision will impact banks, financial institutions, and insurance company subsidiaries involved in securities underwriting.
SEBON Underwriting Limit Increase
SEBON spokesperson Niranjaya Ghimire explained the change. “Merchant banks can underwrite up to three times their net worth. This limit remains for independent merchant banks. However, subsidiaries of banks, financial institutions, and insurance companies can now underwrite up to their parent company’s net worth. The parent company must ensure liability coverage,” he stated.
Key Changes in Underwriting Rules
The adjustment falls under Schedule 9 (Clause G) of the Securities Businessperson (Merchant Banker) Regulations, 2064. Previously, underwriters could only underwrite securities up to three times their net worth, while investment managers could manage investments up to fifteen times their net worth.
SEBON’s decision on March 20, 2025 (Chaitra 7, 2081) adds a new provision. Now, if a subsidiary of a bank, financial institution, or insurance company signs an agreement with the parent company, it can underwrite up to its parent company’s latest audited net worth.
Impact on Merchant Banks
The change will give more flexibility to bank-affiliated merchant banks. With increased underwriting capacity, these institutions can participate in larger securities transactions.
Before this, they faced strict limits, restricting their ability to support big stock issuances. The new rule allows them to expand operations, enhance liquidity, and boost investor confidence.
SEBON has also clarified that the parent company must take full responsibility for underwriting risks. This ensures that financial stability remains a priority.
Benefits of the New Policy
This decision aims to strengthen Nepal’s capital market by increasing participation from large banking and insurance-backed institutions. Some expected benefits include:
Higher liquidity in the securities market
Better investment opportunities for institutional investors
Larger underwriting transactions for major financial groups
More robust financial backing for capital market issuers
Implementation and Next Steps
SEBON has yet to formally include this change in the Merchant Banker Regulations. Officials have confirmed that regulatory adjustments will be made soon.
Independent merchant banks, however, will still follow the old limit of three times their net worth for underwriting. Only subsidiaries with a parent company’s guarantee can use the new rule.
Conclusion
Nepal’s capital market is evolving, and regulatory changes are helping financial institutions expand. SEBON’s decision allows larger institutions to play a bigger role in securities underwriting. This move aligns Nepal with global capital market trends and ensures stronger financial backing for issuers.
Market participants must adapt to the new changes, but this shift promises a more active and stable securities market in Nepal. SEBON will monitor implementation to ensure compliance and market growth.
For more: SEBON Underwriting Limit Increase
