Supreme Court Provides Interim Relief to Banks on Sale of Non-Banking Assets

The Supreme Court has provided relief to banks and financial institutions struggling to dispose of rising volumes of non-banking assets accumulated after borrowers defaulted on loans.

A constitutional bench comprising Chief Justice Prakashman Singh Raut and Justices Kumar Regmi, Hari Prasad Phuyal, Dr Manoj Kumar Sharma and Dr Nahakul Subedi on November 26 issued an interim order instructing the government not to immediately implement the provision that requires banks and financial institutions to sell non-banking assets within three years of acquisition and, if unsold within that period, to obtain government approval before selling them.

With the interim order in place, banks and financial institutions can now sell non-banking assets held for more than three years without seeking prior government approval.

The government had tightened the rules in June 2024 by amending the Some Nepal Acts, which revised Clause 12(c) of the Land Related Act, 2021, imposing stricter limits on the sale of non-banking assets held for over three years. After facing difficulties in disposing of such assets, the Confederation of Banks and Financial Institutions Nepal (CBFIN) and others filed a writ petition on November 10 against the government and the Ministry of Land Management, Cooperatives and Poverty Alleviation.

The court noted that restricting the sale of non-banking assets could cause “irreparable damage” to banks. It said forcing banks to hold on to collateral they could not auction would expose their investments to significant risk if government approval for selling assets beyond the three-year limit were denied. The bench also said the provision appeared to conflict with Article 17(2)(c) and Article 25 of the Constitution.

The interim order states that enforcing Clause 12(c) before the final hearing could inflict irreparable harm on banks and financial institutions. Therefore, the relevant provision of the Land Related Act should not be implemented until the final hearing.

 The order offers “some relief” to the banking sector, CBFIN President Upendra Poudyal said. “It is impossible for banks to sell non-banking assets within the stipulated period. The Supreme Court’s interim order provides necessary relief,” he added.

According to Nepal Rastra Bank, non-banking assets held by banks and financial institutions reached Rs 51.12 billion as of mid-October in the current fiscal year (FY 2025/26). In mid-July 2021, they stood at Rs 7.69 billion—an increase of 564 percent over five years.

Amid rising non-banking assets, the government has announced plans to establish an asset management company. NRB has already submitted a draft of Asset Management Act to the government, but the plan has not moved forward.

The central bank’s Annual Supervision Report for FY 2023/24 noted that subdued economic activity and a slowdown in real-estate transactions had hindered banks’ ability to sell non-banking assets. The report also pointed out that although many institutions have held such assets for more than three years, they lack dedicated management plans.

Banks, for their part, say they have recently created separate web portals to facilitate the sale of non-banking assets. However, weak economic activity, sluggish real-estate demand and the ongoing crisis in the cooperative sector have prevented these assets from being sold, according to bankers.