NRB Sets Minimum Paid-Up Capital of Rs 2.5 Billion for Cooperative Banks

Nepal Rastra Bank (NRB) has fixed the minimum paid-up capital at Rs 2.5 billion for cooperative banks permitted to conduct limited banking transactions.

Issuing its first-ever directive for cooperative banks, the central bank has clarified provisions related to capital structure, capital adequacy, lending limits, and regulatory actions to be taken by NRB.

According to the directive, a cooperative bank must maintain core capital equivalent to at least 4 percent of its risk-weighted assets, while total capital must be at least 8 percent of total risk-weighted assets. Cooperative banks failing to maintain the required capital adequacy ratio will face corrective measures, including restrictions on bonus share distribution if capital falls below 25 percent, a ban on opening new branches, and a freeze on salary and allowance increases for senior management. NRB may also declare such banks problematic or revoke their licenses if non-compliance persists.

The directive also limits lending exposure. A cooperative bank may extend loans of up to 15 percent of the total assets of a member institution or 20 percent of the cooperative bank’s total ordinary share capital from the previous quarter, whichever is lower.

Cooperative banks may provide collateral-free loans of up to Rs 2.5 million against the collective guarantee of a borrowing institution’s board of directors. However, such loans may be used exclusively for microcredit purposes, with individual loans capped at Rs 500,000.

In addition, cooperative banks may finance up to 80 percent of a project’s total cost against project collateral and up to 90 percent against the savings collateral of cooperative institutions.

The directive caps exposure to the real estate sector at 10 percent of total loans, while combined lending to real estate and residential housing is limited to 25 percent.

At present, the National Cooperative Bank is the only institution operating under NRB’s permission to conduct limited banking transactions.