Nepal Rastra Bank, the Central Bank of Nepal ("NRB") has issued a notice on 03 April, 2018 ("Notice") to allow licensed Class-A banks (i.e., commercial banks) in Nepal to borrow loans from foreign bank and financial institution in convertible foreign currency up to twenty-five (25) percent of their core (or Tier I) capital.
With this regulatory ease, it is expected that the current challenge of credit crunch will get meaningful addressing and pooling of much needed capital for infrastructure sector will be relatively easier.
The Notice has set some conditions applicable on obtaining foreign loans, mainly relating to - (i) eligibility of borrowers and lenders; (ii) use of borrowed fund, and (iii) restrictions; and (iv) reporting. All of them are briefly highlighted below:
1. Eligibility of borrowers and lenders:
1.1. Eligibility of Borrower and maximum borrowings:
1.2. Eligibility of Lenders:
There should not have been any kind of restrictions for such foreign bank and financial institution to be engaged in financial transactions internationally.
2. Conditions of borrowing and use of borrowed fund
The receipt of money under the loan as well as repatriation (payment) of principal and interest should be compulsorily notified/recorded to NRB. Similarly, interest can be paid only after deducting withholding taxes.
Disclaimer: This Note may not necessarily deal with every important aspect of the subject matter. This Note is intended for general information only and not to be construed as legal or other advice. This Note covers the legal provisions as of the date of this Note only and does not speculate the future legal provisions.