Nepal Rastra Bank Eases Working Capital Loan Limits

August 29, 2023 | Investopaper

In a move to bolster the manufacturing sector, Nepal Rastra Bank (NRB) has announced a significant relaxation in the ceiling for working capital loans.

Under the revised regulations, manufacturing units are now eligible to access working capital loans of up to Rs 30 million, marking a substantial increase from the previous limit of Rs 10 million applicable to firms across industries.

The central bank’s decision comes as a result of the revision of the Working Capital Loan Guidelines for 2022, which demonstrates a shift towards greater flexibility on this matter. The private sector had been actively advocating for the abandonment of these guidelines since their inception, and the recent move signifies a response to these industry demands.

Issuing a circular on Monday, the central bank has extended support to the manufacturing sector, effectively propelling the productive segment of the nation’s economy. Nepal Rastra Bank has stated that the relaxed conditions will apply primarily to industries that enhance the value of raw materials or semi-finished goods through either human labor or machinery.

For enterprises operating within the productive sector and boasting an annual turnover surpassing Rs 30 million but not exceeding Rs 40 million, the new guidelines recommend considering an amount equivalent to 20 percent of their annual turnover when determining the suitable working capital loan. A similar rule has been established for loans ranging from above Rs 10 million up to Rs 20 million in other sectors.

A noteworthy change introduced by this policy shift is the increase in the maximum allowable working capital loan amount. Banks are now authorized to extend working capital loans up to 50 percent of the highest annual turnover, based on the specific industry, business type, or operating cycle of the companies. This represents a significant upward adjustment from the previous cap of 40 percent, potentially opening avenues for increased financial support to businesses across diverse sectors of the economy.

Working capital loans play a crucial role in financing the day-to-day operational activities of companies. Unlike loans intended for long-term asset acquisition or investment, these loans cater specifically to the immediate financial needs of businesses. Nepali banks offer various forms of working capital loans, including cash credit, short-term loans, import-export financing, and term loans.


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