Speaking at an interaction program organized by the Association of Economic Journalists of Nepal (NAFIJ), NRB Spokesperson Guru Prasad Poudel revealed that banks and financial institutions (BFIs) have already deployed approximately Rs 500 billion in outstanding loans to the energy sector.
Expanding the Investment Horizon
While banks operate under a total credit flow capacity of Rs 6 trillion, current regulations allow them to allocate up to 10–15% of their total credit to the energy sector. This leaves an investment headroom of up to Rs 900 billion for future energy projects.
To mobilize these resources, NRB has eased limits and introduced several strategic concessions:
- Double the Exposure Limit: While BFIs are restricted to lending a maximum of 25% of their primary capital to other sectors, they can now invest up to 50% of their primary capital in energy and transmission line infrastructure.
- Energy and Dedicated Bonds: Banks are actively using energy bonds to raise capital, with commercial and development banks already investing Rs 10 to 11 billion. The monetary policy for the current fiscal year also paves the way for dedicated bonds aimed at government-priority projects, such as the Budhigandaki Hydropower Project.
- Climate & Green Funding: Pointing toward the future, Spokesperson Poudel emphasized a "financial resource mix." The newly introduced Green Finance Taxonomy will serve as a foundation for issuing international-standard green bonds and attracting global climate funds.
Key Regulatory Concessions for Hydropower
To keep project costs manageable and encourage banks to lend, the central bank has adjusted critical risk and provisioning rules:
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Policy Area
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Standard Rule (Other Sectors)
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Relaxed Hydropower Rule
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Loan Loss Provisioning
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Standard rates apply during grace/construction periods.
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Only 1% loan loss provision is required during the project's construction grace period.
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Interest Capitalization
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Strict capitalization limits.
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Interest can be capitalized within the construction grace period for projects above 50 MW.
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Loan Classification (Default)
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If one installment is missed, the entire loan amount is classified as "bad/risky."
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Only the specific overdue installment is classified as risky, protecting the rest of the loan status.
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According to the Independent Power Producers' Association, Nepal (IPPAN), financial commitments from BFIs to the hydropower sector have already reached Rs 870 billion (including both funded loans and non-fund commitments like letters of credit and guarantees). These new regulatory cushions are expected to significantly lower banking risks and catalyze further private sector participation.
