NRB Raises Loan Limit for Electric Public Transport to 80 Percent

Kathmandu — Nepal Rastra Bank has eased financing requirements for large electric vehicles used in public transportation, allowing banks and financial institutions to lend up to 80 percent of the vehicle’s assessed value.

The provision has been introduced through an amendment to the Unified Directives, 2082. It represents a targeted relaxation of vehicle-lending rules intended to encourage investment in electric buses and other large passenger vehicles operated as public transport.

Under the previous general arrangement, banks and financial institutions could finance up to 60 percent of a vehicle’s value. Buyers therefore had to arrange at least 40 percent of the purchase price from their own resources.

The revised provision raises the maximum loan-to-value ratio for eligible electric public vehicles by 20 percentage points, from 60 to 80 percent. As a result, transport operators may now be required to contribute only around 20 percent of the vehicle’s value as a down payment.

The change effectively cuts the minimum equity contribution by half. Although the loan limit has increased by 20 percentage points, the financing available from banks has risen by one-third relative to the earlier ceiling.

For example, an operator purchasing an eligible electric bus valued at Rs 10 million could previously obtain a maximum bank loan of Rs 6 million and would have needed to arrange the remaining Rs 4 million independently.

Under the revised limit, the same operator could receive financing of up to Rs 8 million, reducing the required initial contribution to Rs 2 million. The policy could therefore make a substantial difference for transport businesses facing difficulty mobilising large amounts of capital at the beginning of a project.

Facility limited to public transport

The higher loan ratio will not apply to every electric vehicle.

Nepal Rastra Bank has retained the maximum loan-to-value ratio of 60 percent for electric vehicles used for general or private purposes. The same limit will continue to apply to other privately owned personal vehicles.

The 80 percent facility is specifically intended for large passenger electric vehicles operated as public transportation. Electric buses and similar vehicles serving paying passengers are expected to be the main beneficiaries.

The distinction indicates that the central bank is not introducing a general relaxation in automobile lending. Instead, it is directing additional credit support towards a segment considered capable of producing broader economic and environmental benefits.

Private electric car buyers will still need to contribute at least 40 percent of the vehicle’s value, subject to the bank’s lending conditions. Public transport operators purchasing eligible large electric vehicles may face a down payment requirement of only around 20 percent.

This targeted approach could help prevent an excessive expansion of personal vehicle credit while encouraging investment in vehicles that serve a larger number of people.

Lower entry barrier for transport businesses

The high initial cost of electric buses has been one of the major barriers to their wider adoption.

Although electric vehicles may have lower fuel and maintenance expenses over time, their purchase price is often higher than that of conventional petrol- or diesel-powered alternatives. Transport operators must also consider the cost of charging equipment, maintenance facilities, batteries and route operations.

By increasing the maximum loan ratio, the central bank has reduced the amount of capital that operators must invest before beginning operations.

This may be particularly useful for transport cooperatives, fleet operators and private companies that have a viable business plan but lack sufficient cash to make a large down payment.

The policy does not reduce the price of an electric bus, but it changes how the purchase can be financed. A larger share of the investment can now be spread across the repayment period of the bank loan.

However, the higher financing facility will not automatically guarantee access to credit. Banks will still assess the borrower’s income, repayment capacity, business record, proposed route, collateral arrangements and overall credit risk.

The maximum ratio represents the highest amount a bank is permitted to finance, not an obligation to provide every applicant with an 80 percent loan.

Borrowing burden will also increase

The reduced down payment requirement could make electric buses more affordable at the initial stage, but it will also increase the amount borrowed.

An operator who takes an 80 percent loan will carry a larger debt than one borrowing only 60 percent of the vehicle’s value. This will result in higher interest costs and larger repayment obligations unless the loan period is extended or the interest rate is reduced.

The financial benefit will therefore depend on whether the vehicle can generate enough revenue to cover loan instalments, operating expenses and maintenance costs.

Passenger demand, fare levels, route selection, daily vehicle utilisation and charging expenses will all influence the operator’s ability to repay the loan.

A bus operating regularly on a high-demand urban or intercity route may generate sufficient cash flow to service a larger loan. An electric vehicle operating on a weak or irregular route could struggle despite the lower down payment.

The revised policy reduces the barrier to purchasing a vehicle, but it does not eliminate the commercial risks associated with operating public transportation.

Banks will have to assess new risks

The higher loan ratio also changes the risk exposure of banks and financial institutions.

When a bank finances 80 percent of a vehicle’s value, it has a smaller financial cushion if the borrower defaults and the vehicle must be repossessed and sold.

The resale market for large electric buses is still developing. The value of a used electric vehicle can be affected by battery condition, technological changes, availability of spare parts and the strength of after-sales service.

Battery replacement costs may also influence the long-term value of the vehicle. A bus with a weak or ageing battery could sell for considerably less than its original purchase price.

Banks may therefore need specialised valuation methods for electric commercial vehicles rather than relying only on practices traditionally used for diesel and petrol vehicles.

They may also examine the manufacturer’s reputation, warranty period, battery guarantee, charging compatibility and availability of repair services before approving a loan.

A higher regulatory ceiling could increase lending opportunities, but cautious banks may still provide less than 80 percent financing where the borrower or vehicle is considered risky.

Possible boost to electric bus imports and sales

The policy could increase demand for electric buses by making the financing structure more attractive to transport operators.

Importers and distributors may receive more enquiries from businesses that had previously postponed purchases because of the 40 percent down payment requirement.

The measure could also encourage existing public transport operators to replace ageing diesel vehicles with electric alternatives when renewing their fleets.

However, any rise in demand will depend on the availability and price of suitable vehicles. Operators will compare purchase costs, passenger capacity, driving range, charging time, warranty terms and after-sales services before making investment decisions.

The availability of long-term loans will also be important. Even with an 80 percent loan ratio, short repayment periods could produce instalments that are too high for many operators.

Banks may need to design specialised financing products suited to the operating life and cash-flow patterns of public electric vehicles.

Support for lower petroleum dependence

The revised provision is aligned with Nepal’s broader objective of reducing its dependence on imported petroleum products.

Most conventional public buses depend on imported diesel. Replacing part of the fleet with electric vehicles could reduce fuel consumption and the amount of foreign currency spent on petroleum imports.

Electric public transport could also increase domestic demand for electricity, particularly during hours when the power system has surplus generation.

The economic benefit would be greater if buses are charged using domestically generated electricity. In that case, part of the money currently spent on imported fuel could remain within the national economy.

The impact, however, will depend on the number of vehicles financed and their actual use. A small number of electric buses will have only a limited effect on national petroleum imports.

A significant reduction in fuel dependence would require broader fleet conversion, reliable charging networks and coordinated transport planning.

Environmental gains depend on vehicle use

Electric buses could help reduce local air pollution, particularly in densely populated urban areas.

Unlike diesel buses, battery-powered vehicles do not produce exhaust emissions while operating. Greater use of electric public transportation could therefore reduce roadside smoke and improve air quality along busy routes.

Electric buses also generally produce less operating noise, which could improve the urban environment.

The environmental benefit will be greatest when electric buses replace older, highly polluting diesel vehicles and operate frequently with a high number of passengers.

If electric vehicles are added without replacing existing fuel-powered buses, the total improvement may be smaller. Similarly, poorly planned routes or underused vehicles may not deliver the expected environmental and economic returns.

The policy’s success should therefore be assessed not only by the number of loans issued but also by the number of fuel-powered vehicles replaced, passengers served and kilometres operated using electricity.

Charging infrastructure remains critical

Access to affordable financing addresses only one part of the transition to electric public transport.

Operators also need reliable charging stations, suitable parking areas, sufficient electricity supply and technical support. Large electric buses require more powerful charging facilities than private cars.

A transport business may obtain financing for a vehicle but still face operational difficulties if charging infrastructure is unavailable along its route or at its depot.

Long charging times could reduce the number of trips a bus can complete each day. Frequent power interruptions or inadequate charging capacity could also disrupt scheduled services.

Investment in vehicles will therefore need to be matched by investment in charging infrastructure. Coordination among transport operators, electricity authorities, local governments, banks and private charging companies will be essential.

Without adequate infrastructure, easier credit alone may not produce a large-scale shift towards electric public transport.

Replacement financing for affected businesses

The central bank has also allowed banks and financial institutions to provide financing of up to 80 percent for commercial and freight vehicles that must be replaced after being damaged at industries or business establishments directly affected by the Gen Z movement.

This provision is intended to provide financial relief to businesses that have lost vehicles used for transportation, distribution or logistics.

The higher loan ratio could reduce the immediate capital burden on affected enterprises. Businesses replacing damaged vehicles may need to contribute only around 20 percent of the replacement cost, subject to bank approval.

For companies dependent on commercial vehicles, the loss of transport capacity can interrupt production, delivery and revenue collection. Faster access to replacement financing could help them resume operations.

However, banks are likely to require evidence that the vehicle was directly affected and genuinely needs replacement. Insurance compensation, the condition of the damaged vehicle and the borrower’s repayment capacity may also influence the loan decision.

Where a business receives an insurance payment, the bank may consider that amount when deciding the size and structure of the new loan.

Impact on public transport modernisation

The revised policy could support the gradual modernisation of Nepal’s public transport fleet.

Many public vehicles currently in operation are old, fuel-inefficient and expensive to maintain. Easier financing for electric alternatives may encourage operators to replace vehicles that have reached the end of their useful lives.

The transition could also improve passenger comfort if newer electric buses offer better safety features, seating arrangements and accessibility.

However, financing policy alone cannot resolve wider problems in public transportation. Route management, fare regulation, road conditions, parking, maintenance standards and competition among operators will continue to shape the sector.

Transport businesses may hesitate to take large loans unless they have confidence that routes will remain commercially viable and fare policies will allow them to recover operating costs.

Local and provincial governments may therefore need to coordinate permits, routes and charging infrastructure with the central bank’s financing initiative.

More attractive for institutional operators

The 80 percent lending limit may be most effective for organised transport companies and cooperatives capable of maintaining financial records and demonstrating predictable cash flow.

Large fleet operators may be better positioned to negotiate loan terms, install depot-based charging systems and manage vehicle maintenance.

Smaller individual operators could still find the loan requirements difficult if they lack formal accounts, adequate collateral or a clear repayment history.

Banks may also prefer financing multiple vehicles for an established company rather than a single expensive bus for a first-time operator.

To make the policy more inclusive, lenders may need products designed for transport cooperatives and small operators, with repayment schedules linked to business income.

Credit guarantees or risk-sharing arrangements could further encourage banks to finance borrowers who have a viable operation but limited collateral.

Higher LTV is an incentive, not a subsidy

The policy provides easier access to borrowing, but it is not a direct government subsidy.

Vehicle buyers will still be required to repay the full loan with interest. The central bank has not announced that it will pay part of the vehicle cost or compensate banks for offering the higher ratio.

The provision should therefore be understood as a regulatory incentive. It allows banks to finance a larger portion of the purchase price than they could under the general vehicle-loan rule.

The final cost to the operator will depend on the interest rate, loan tenure, processing fees, insurance expenses and repayment schedule.

A loan with a high interest rate or short maturity could remain unaffordable even with a lower down payment. Conversely, a long-term loan at a reasonable rate could make fleet conversion commercially practical.

Policy balances green investment and credit risk

By retaining the 60 percent limit for private vehicles while raising it to 80 percent for large public electric vehicles, Nepal Rastra Bank has adopted a selective rather than universal approach.

The policy recognises that public transport can deliver benefits beyond the individual vehicle owner. One electric bus can carry many passengers and potentially replace several private or smaller fuel-powered vehicles.

At the same time, the central bank has avoided encouraging a broad expansion of highly leveraged personal automobile loans.

The distinction reflects an attempt to use credit regulation to direct financing towards activities with wider environmental and economic value.

Its effectiveness will depend on whether banks consider electric public transport commercially bankable and whether operators can maintain reliable services while meeting repayment obligations.

Implementation will determine the outcome

The amendment has reduced the financing barrier for large electric public vehicles, but several practical factors will determine its impact.

Banks must develop appropriate credit-appraisal methods, while operators need viable routes and stable revenues. Importers must provide dependable vehicles, spare parts and warranties, and public agencies must support charging infrastructure.

Clear criteria will also be needed to determine which vehicles qualify as large passenger electric vehicles used for public transport. Consistent interpretation across banks will help prevent confusion and unequal treatment of borrowers.

Monitoring will be necessary to ensure that vehicles financed under the preferential ratio are genuinely used for public transportation rather than diverted to other purposes.

The central bank may also need to evaluate whether higher lending leads to increased loan defaults or produces measurable growth in electric public transport.

Overall, the policy marks a significant shift in vehicle financing. It lowers the minimum down payment for eligible electric public vehicles from 40 percent to about 20 percent and increases the maximum bank-financed amount from 60 to 80 percent.

For transport operators, the measure offers an easier path to purchasing expensive electric buses. For banks, it creates new lending opportunities but requires stronger assessment of vehicle values, business cash flow and technology-related risks.

For the wider economy, the potential benefits include lower petroleum consumption, greater use of domestic electricity, cleaner urban transport and faster replacement of damaged commercial vehicles.

Those benefits, however, will emerge only if affordable credit is supported by reliable charging facilities, commercially sustainable routes and careful lending practices. The amendment provides the financial opening, but the scale of the transition will depend on how effectively transport businesses, banks and public agencies use it.