Loan On Share Collateral By BFIs Rises To Rs 94.34 Billion

June 20, 2021 | Investopaper

Banks and financial institutions have disbursed loans of Rs 94.34 billion on share collateral until Baisakh, 2078 BS. This is an increase of about 99 percent compared to the same period of the previous fiscal year. Compared to the same period of the previous fiscal year, such loan has increased by Rs 46.97 billion. Until Baisakh 2077 BS, such loans stood at Rs. 47.36 billion

As the second wave of corona infections intensified, other sectors of the economy came to a standstill. As a result, there has been no demand for loans from those sectors. The stock market, on the other hand, is rallying to new highs. Banks have increased the flow of loans on share collateral as the share market continues to rise.

The stock market was closed for more than three months during the previous lockdown. Since then, the market has continued to grow. That is why the credit flow of BFIs is also concentrated in this sector.

Loans issued by banks and financial institutions as share collateral loan are classified into four categories:

—Less than Rs. 2.5 million,

—Rs. 2.5 million to Rs. 5 million,

—Rs. 5 million to Rs. 10 million and

—More than Rs. 10 million.

About 68 percent of the total loans is floated to the category of more than Rs. 10 million. This confirms that the stock market is dominated by big business houses. According to the NRB, about 12 percent of the total loan disbursed by the bank as share loan is between Rs 5 million and Rs 10 million, about 13 percent is between Rs 2.5 million to 5 million and 7 percent is less than Rs 2.5 million.

Overdraft credit has increased by about 28 percent in the first nine months of the current fiscal year. Such credit growth was only 5.7 percent in the corresponding period of the previous year. It is estimated that most of the loans disbursed under the heading of personal overdraft has also flowed to the share market.

As per the NRB directive, banks and financial institutions are allowed to disburse share loan up to a maximum of 40 percent of their primary capital. At present, the total primary capital of banks and financial institutions is around Rs. 450 billion.

Suggested Readings:

Basic Requirements To Start Trading In The Stock Market Of Nepal

Major Factors Influencing The Share Market Of Nepal


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