NEPSE rises with gains in finance; NRB updates rules on bad loans and more; SEBON mulls over draft IPO amendments

Week in NEPSE: Dec 14-18

NEPSE index advanced with limited price movement.

The index opened at 2,607.05 on Sunday (Dec 14), growing higher mid-week, reaching an inter-week high of 2,632.81 on Wednesday (Dec 17), before declining to close at 2,615.03 on Thursday (Dec 18).

NEPSE price movement [Dec 14 - 18]

Similarly, market turnover softened at early sessions, dipping to NRs 3.29 billion on Tuesday  (Dec 16), but gradually increased as the week progressed. Turnover peaked at NRs 4.58 billion on Thursday (Dec 18).

Index highlight

The recent week [Dec 14 -18] saw NEPSE edge higher, closing at 2,615.03, up by 0.78% from 2,594.87 on Sunday. While most of the main indices posted moderate gains, the sensitive float index led the week, with an increase of 1.23%, reflecting strength in freely traded large-cap shares.

Index performance (% change)

Among the sectors, the development bank and finance index led the gains with 2.5% and 1.52% respectively, followed by manufacturing and processing at 1.23% and banking index at 1.17%. Life insurance, hotel & tourism, and non-life insurance posted moderate gains. Meanwhile, hydropower, trading, investment, and mutual funds posted small gains, whereas other categories slightly declined by 0.17%.

Overall, the market displayed a gradual upward trend within a narrow momentum. 

Stock in focus: gainers and losers

Swastik Laghubitta Bitiya Sanstha (SWASTIK) continues to dominate the gainers' list this week as well. SY Panel Nepal (SYPNL), a recently listed share, also maintained its growth streak from the previous week. 

Other high-performing scripts, such as Narayani Development Bank (NABBC) and Sindhu Development Bank (SINDU), also contributed to this growing trend.

On the contrary, several stocks such as Barahi Hydropower (BHPL), City Hotel (CITY), and Himstar Energy (HIMSTAR) experienced a notable decline, marking a reversal in sentiment. 

Market watch: News, policies, and listings

Inflation eases 1.11% in first four months, says NRB’s four-month data

Nepal’s inflation remained low at 1.11% in the first four months of FY 2025/26, primarily due to a 3.32% drop in food prices, easing pressure on household budgets. 

Other macroeconomic updates from NRB show:

• External sector: Remittances surged 31.4% to NRs 687.13 billion. Foreign exchange reserves increased to NRs 3,055.52 billion, enough to cover 17.4 months of imports.
• Fiscal sector: Capital expenditure stood at NRs 25.31 billion, down by 26.7% y-o-y, signaling weak public investment.
• Monetary and banking sector: Broad money expanded by 12.5% y-o-y, deposits grew by 13.4%, and private sector credit increased by 6.9%. Data shows interest rates continue to decline, with the weighted average inter-bank rate standing at 2.75%, and commercial lending at 7.38%. 
• Two indicators continue to be worrisome: the non-performing loan ratio rose to 5.26%, while NRB absorbed net liquidity of NRs 19,543.55 billion through monetary instruments, showing continued excess liquidity in the banking system.

NRB updates banking rules on loans, assets, and governance guidelines

NRB has revised regulations on bad loan classification, non-banking assets, black listing, risk weighting, and shareholders' transactions of banks and financial institutions, including NIFRA.

• Previously, co-financing loans of NRs two billion or more remain, which weren’t converted into consortium financing required to be categorised under the watchlist. Now, short-term, non-renewable working capital loans under a pari passu agreement are exempted from this provision.

Pari Passu Agreement: Pari Passu — Latin for ‘equal footing’, is used in finance where two or more parties (borrowers or lenders) share rights and obligations in equal proportion.

• Previously, loans where the auction process or legal proceedings started were classified as bad loans. Now, if a borrower regularises the repayment even when the legal process has begun, banks no longer require them to classify it as non-performing. 
• Similarly, for non-banking assets, BFIs can only acquire the borrower’s collateral assets after three unsuccessful auctions. Banks no longer need to keep a loan loss provision after acquisition.
• For regular Equated Monthly Installment (EMI) or semi-annual installments, extra loan loss provisioning is not required if the schedules change due to prepayment or variable interest rates. If the installment changes because of interest rate fluctuation, borrowers can request an adjustment once per year.
• NRB now allows loan instalments to be adjusted once a year following interest rate changes, based on the borrower’s income and a written request.
• Loans to national priority sectors, including hydropower, cable cars, star hotels, cement, and other infrastructure projects, are still considered “good loans” with a 1% loan loss provision. However, NRB now requires borrowers to submit evidence showing increased productive capacity, reflecting rising costs and repayment risks.
• For the energy projects, NRB has broadened its interest capitalisation rule. Previously, only hydropower projects of 50 MW or more could transfer amounts from the Interest Capitalised Reserve (ICR) to Retained Earnings once construction reached 60% completion. 
• Now, this applies to all energy projects, including hydropower, solar, wind, and other renewable energy sources. During the grace period, capitalised interest must be recorded separately under Interest Capitalized Term Loan (ICTL) and kept in ICR, ensuring the bank tracks interest without immediately recognising it as profit.

Interest Capitalized Reserve (ICR): Large projects under construction generally don't generate revenue, but borrowers are still required to pay interest on the loan. Instead of asking borrowers to pay interest during construction, banks add the unpaid interest to the loan amount. This process is called interest capitalization. Interest accrues, but banks don’t recognize it as profit immediately. For this, banks special reserve account to hold the interest income accrued on project loans during construction.

• Accounting for interest income must now follow the ‘Guidance Note on Interest Income Recognition, 2025’, replacing the old NFRS 9, 2024. While interest income transfer to regulatory reserves now excludes the first 15 days of the fiscal year. Additionally, the debt service to gross income ratio calculation requires all income-related source documents within the loan period. 
• Additionally, the NRB has reaffirmed that BFIs can provide up to 70% Loan-to-Value financing for personal residential purposes, regardless of the loan amount.

Loan-to-Value (LTV): ratio A financial metric that measures the percentage of an asset’s value (or purchase price) that is financed through a bank loan.

• Blacklisting rules have been clarified. Borrowers fully repaying dues on non-banking assets can be removed from the blacklist if banks acquire the non-banking assets such that the entire outstanding loan amount is recovered. Erroneous blacklisting must be corrected without leaving records, but reported quarterly. Blacklisted individuals cannot open accounts, though exceptions exist for social security, salary, and pension payments.
• Founders holding 2% or less of paid-up capital may buy or sell shares among founders or other parties without NRB approval. Other founders generally require prior approval, and shareholders with more than 2% cannot split holdings to exploit the exemption.
• On capital and credit, countercyclical buffer calculations will now use a five-year Credit-to-GDP trend, excluding the current year. Risk weight for trust receipt loans is reduced from 120% to 100%, while claims on domestic public sector entities are risk-weighted according to credit ratings, with a minimum floor of 50%.

• Bank chairpersons, directors, and CEOs are required to seek board approval for foreign trips. 
• BFIs may independently merge metropolitan branches if transaction volumes are high.

A study committee under SEBON proposes major changes to IPO eligibility

A study committee formed by SEBON in January this year has reportedly submitted its draft proposal to the board, suggesting amendments to current regulations on IPOs, rights issues, and lock-in period.

Under the proposal, hydropower companies will be permitted to raise capital from the public only after they enter commercial operations. For companies under the hotel and real estate sector, they would require a minimum paid-up capital of NRs one billion and at least three years of operational history to do so.

The proposed draft also increases the minimum IPO threshold, which currently sits at 10%. The companies will now have to either offer 20% of their issued capital or raise a minimum of NRs 300 million, whichever results in a larger public issue. 

The draft has also revised the book-building mechanism, increasing the share allocation to institutional investors from 40% to 60% during the price-discovery stage. Regulators are seeking to address concerns that the existing framework gives a relatively small group of institutional investors disproportionate influence over IPO pricing, potentially disadvantaging retail investors. By raising the institutional allocation, the proposed changes aim to create a more robust and transparent price-discovery process while protecting broader market participation.

eSewa approves massive cash and stock dividend; Eyes IPO in near future

Amid a flurry of declarations of dividends this week by several listed companies, eSewa, the country’s prominent digital wallet platform, has approved an 80.53% cash dividend and 31.58% bonus shares. 

During its 13th Annual General Meeting, the company confirmed the previously declared dividend distribution, authorising a cash payout of Rs 306 million (inclusive of tax), which accounts for 80.53% of the current paid-up capital. In addition, bonus shares worth Rs 120 million, representing 31.58% of the paid-up capital, will be issued from the company’s net profit and reserve funds.

eSewa also revealed plans to launch an initial public offering (IPO) in the near future.

Trading spotlight: IPOs and listed companies

Although there were no IPO listings on NEPSE this week. Bhujung Hydropower Limited has opened its IPO, offering 10,00,000 shares to project-affected locals in Lamjung and 1,00,000 shares to Nepali citizens abroad, which will run until  January 1, 2026, and foreign subscriptions until December 22, 2025. The company’s total capital is NRs one billion, with 20% for the public. Kumari Capital manages the issue, while ICRA Nepal has downgraded the rating from B+ to B-. Bhujung, founded in 2015, is developing the 7.5 MW Upper Midim run-of-river project in Lamjung.