Nepal Rastra Bank (NRB) has amended the Integrated Directive 2082 BS issued to banks and financial institutions (BFIs) and amended the provision related to share collateral loan. According to the new system, more flexibility has been adopted in the limit of loans provided by banks by assessing the strength of listed companies.

According to the revised directive of the Nepal Rastra Bank, banks and financial institutions will now have to mandatorily prepare a product paper to evaluate the strength of the listed institutions while issuing share collateral loans. Based on the valuation, the loan can be added up to 10 percent points to the existing loan limit on the shares of the companies that have been rated as the best companies.

Grounds for evaluating a company's strength:

The directive states that banks should formulate an evaluation method to assess the strength of any company by including at least the following 6 factors:

1. Size of paid-up capital 
2. Minimum period of listing in securities market
3. History and period of dividend distribution
4. Credit rating of the organization
5. Adherence to regulatory provisions
6. Whether or not regular AGM has been held

The companies that score the highest marks in this valuation can be lent up to a maximum of 10 percent points in the loan-value ratio determined by NRB. For example, if a company currently has a provision of 70 percent loan on shares, then banks can lend up to 80 percent to companies that are good in terms of strength.

Here is the full script of the directive: