Finance Companies Gain New Growth Opportunities as NRB Lifts Deposit Collection Cap

National-level finance companies in Nepal have received a significant boost after the Nepal Rastra Bank (NRB) removed the cap on deposit collection, opening new avenues for business expansion.

As part of the monetary policy for the current fiscal year 2025/26, NRB issued a directive in mid-July, lifting the restriction that allowed national-level finance companies to collect deposits up to only 15 times their core capital. With this change, these institutions can now mobilize financial resources based on their actual capital strength.

Sunil Pant, President of the Nepal Financial Institutions Association, welcomed the move, saying, “Finance companies have long faced discrimination due to deposit collection limits. With the cap removed, companies can now operate in line with their capital capacity.”

In the monetary policy of FY 2015/16, NRB had raised the minimum paid-up capital requirement for national-level finance companies to Rs 800 million, a fourfold increase. However, despite meeting this requirement, companies were constrained by the 15 timmes deposit collection limit, restricting business expansion. Industry stakeholders have consistently argued that increased capital also boosts risk-bearing capacity, justifying the need to remove the ceiling.

“Previously, finance companies had weak capital bases, so deposit limits were necessary,” said Pant. “But now, most have exceeded the minimum capital requirement, making the cap obsolete.”

Currently, 17 finance companies are operating in Nepal, of which 15 are classified as national-level. These 15 companies will now be allowed to collect deposits beyond the earlier 15-fold core capital limit. However, Janaki Finance and Multipurpose Finance, both operating at the provincial level, are still subject to the existing cap.

Officials from NRB’s Financial Institutions Supervision Department stated that the cap was removed because many finance companies now have stronger capital bases. “Companies must maintain capital in line with their risk exposure,” said one director. “Since the limit no longer serves its original purpose, it has been lifted.”

According to NRB regulations, finance companies are required to maintain a minimum core capital ratio of 6 percent and a total capital adequacy ratio of 10 percent. As of mid-April 2025, the average core capital ratio stood at 9.94 percent, and the total capital adequacy ratio was 11.99 percent figures that indicate most companies are well-capitalized and ready for expansion.

By mid-April 2025, finance companies had mobilized Rs 127.33 billion in deposits and disbursed loans worth Rs 99.70 billion. However, the average non-performing loan (NPL) ratio was relatively high at 10.58 percent, according to NRB data.

This policy update follows a similar move last year, when NRB removed the cap on development banks, which had previously been allowed to collect up to 20 times their core capital in deposits.