NRB Doubles Limit on Unspecified Personal Loans, Allowing Borrowers to Access Up to Rs 10 Million

In a move that significantly reshapes household lending practices, Nepal Rastra Bank (NRB) has doubled the ceiling for personal loans issued without a declared purpose. Until now, individuals could access a maximum of Rs 5 million under personal loans and overdraft facilities that did not specify the loan’s intended use. However, under the first quarterly review of the Monetary Policy for the ongoing fiscal year, NRB has amended the integrated directive, raising the limit to Rs 10 million (one crore).

According to the revised directive, banks may now extend up to Rs 10 million under various categories of personal loans—including unspecified personal overdraft loans, collateral-backed loans, property-based loans, personal term loans, and loans secured against shares. This expansion applies uniformly across all personal-purpose loan products where borrowers do not declare a specific end-use for the funds.

The central bank has also placed a strong compliance obligation on banks to ensure that borrowers do not exceed the aggregate limit of Rs 10 million when borrowing from multiple institutions. NRB’s directive clearly states that banks must verify the borrower’s total exposure across the financial system before extending additional credit. If a borrower is found to have exceeded the limit, banks issuing the excess loan will be required to maintain a 100 percent loan-loss provisioning on the amount that crosses the ceiling—a penalty designed to enforce strict adherence.

This policy shift marks a notable change in NRB’s stance toward personal credit expansion. Traditionally, the central bank has taken a cautious approach to unsecured or unspecified household borrowing due to concerns over rising consumer debt, misuse of funds, and risks to financial stability. Doubling the loan ceiling signals a calibrated relaxation—intended, analysts say, to support domestic economic activity at a time when liquidity levels in banks remain relatively stable and credit demand in productive sectors has slowed.

The policy also reflects NRB’s attempt to formalize and regulate the growing appetite for personal financing. In recent years, many households have sought higher-value loans for diverse purposes—ranging from home renovation and education to small investments and emergency needs—but strict loan caps often forced borrowers toward informal lending channels. By increasing the threshold, NRB aims to bring more borrowing under the regulated financial system, thereby reducing reliance on unmonitored private lenders.

However, experts caution that the relaxed limit may also fuel speculative borrowing if not monitored carefully. One area of concern is share-secured loans, which fall under the new personal loan limit. While NRB has attempted to cap exposure by including share-backed overdrafts within the Rs 10 million bracket, market observers warn that easier access to such loans could spur speculative activity in the stock market—especially during periods of volatility. Banks may also face higher credit risks if borrowers use these funds in non-productive or high-risk areas without proper assessment.

Nonetheless, NRB’s safeguard requiring 100 percent provisioning on loans that exceed the prescribed limit is seen as a strong deterrent. Banks, already under pressure to maintain capital adequacy ratios, are unlikely to risk lending beyond the threshold. This mechanism ensures that compliance remains strict, even as the central bank offers borrowers greater financial flexibility.

From a macroeconomic standpoint, the expansion of personal loan limits could help stimulate consumption and ease financial constraints for middle-income households. Enhancing access to credit may support sectors such as real estate, household goods, education, medical care, and small-scale entrepreneurship. Yet, the ultimate impact will depend on how prudently banks evaluate borrowers’ repayment capacity and monitor the exposure across institutions.

In conclusion, NRB’s decision to double the limit on unspecified personal loans represents a balancing act—providing households with broader financial leeway while maintaining regulatory oversight. As the economy continues to navigate uneven recovery patterns, the move is intended to energize consumer confidence without compromising systemic stability. Its success will rely heavily on disciplined lending by banks and responsible borrowing practices among individuals.