NRB Cuts Banks’ Share Investment Holding Period from 6 Months to 45 Days

Nepal Rastra Bank (NRB) has revised investment and capital-related provisions for banks and financial institutions, reducing the minimum holding period for investments in shares and debentures of listed organized institutions from six months to 45 days. The change has been incorporated into the Unified Directive, 2082 applicable to Class ‘A’, ‘B’ and ‘C’ licensed banks and financial institutions. Under the revised provision, banks investing in shares and debentures of organized institutions that have issued shares to the general public and are listed on a securities exchange must hold such investments for at least 45 days. The shorter holding period gives banks greater flexibility in managing their securities portfolios and responding to market conditions. However, NRB has retained restrictions against making short-term investments through arrangements designed to circumvent the prescribed holding period. The central bank has also kept the countercyclical capital buffer at zero percent for commercial banks for fiscal year 2083/84. This means banks will not face an additional capital requirement under the buffer, allowing them to utilize their existing capital resources for lending and productive investments. Alongside the reduced holding period, NRB has strengthened the investment risk-management framework. Banks and financial institutions investing in government securities, NRB bonds, shares, debentures and other financial instruments must formulate a clear investment policy and procedure focused on minimizing speculative risks. The policy must receive approval from the institution’s board of directors. The investment policy must specify investment objectives and strategies, the scope of investments, prohibited investments, holding periods and procedures for managing conflicts of interest. It must also define the basis for classifying investments under the banking book and trading book, along with risk-management measures such as stop-loss provisions. The revised framework further requires banks to strengthen portfolio monitoring through daily mark-to-market valuation, stress testing and internal risk ratings. These measures are aimed at ensuring that institutions continuously assess changes in the market value and risk profile of their investment portfolios. For greater transparency, NRB has also introduced separate monthly reporting formats for investments classified under the banking book and trading book. Banks and financial institutions must submit their approved investment policies, procedures and investment-related details to the NRB’s Supervision Department in the prescribed formats. Overall, the revised framework combines a shorter 45-day minimum holding period with tighter governance, reporting and risk-control requirements. The changes provide banks with more flexibility in securities portfolio management while retaining safeguards against excessive speculative investment.