NRB Scraps 20% Annual Sale Restriction – BFIs Free to Manage Portfolio Dynamically

The Nepal Rastra Bank (NRB) has introduced another crucial policy reform through its Unified Directive 2082 (2025 AD) — officially removing the 20% annual sale restriction on investments made by banks and financial institutions (BFIs). This major update provides BFIs with full flexibility to manage, rebalance, and liquidate their investment portfolios according to market conditions, financial strategies, and risk appetite.

Background: The Old 20% Restriction Rule

Previously, BFIs that held shares or debentures for more than one year could sell only up to 20% of their paid-up capital worth of investments in a single fiscal year. The rule was originally implemented to ensure gradual divestment and prevent market volatility caused by large-scale institutional sales.
However, in practice, this limitation became a barrier to efficient portfolio management, preventing banks from responding quickly to market changes or capital requirements. As a result, institutional investors often found themselves unable to capitalize on favorable market conditions, leading to reduced trading activity and lower liquidity in the capital market.

NRB’s New Policy Reform

Under the revised directive, NRB has completely scrapped this 20% annual disposal restriction. Banks and financial institutions are now free to sell, rebalance, or liquidate investments as per their strategic and financial needs — without requiring approval based on annual caps.
This decision aligns with NRB’s broader effort to liberalize the investment framework for BFIs, promote dynamic portfolio management, and encourage institutional participation in the secondary market.

Complementary Reforms

This change follows other significant updates made under the Investment Reform 2082, including:

• Reduction of the minimum holding period for listed shares and debentures from one year to six months, allowing more liquidity movement.

• Stricter supervision of unlisted investments, requiring them to be listed within three years, or equivalent amounts transferred to an Investment Adjustment Fund.
  Together, these reforms form a cohesive framework that combines financial freedom with accountability, empowering BFIs while ensuring responsible risk management.

Market Impact and Analyst Outlook

Market experts have welcomed NRB’s decision, calling it a progressive and timely reform. The removal of the 20% sale cap is expected to:

• Enhance market liquidity and improve the volume of institutional trading.

• Enable proactive risk management, allowing BFIs to quickly exit underperforming investments.

• Attract more institutional participation, strengthening the depth and maturity of the Nepal Stock Exchange (NEPSE).

This flexibility will help banks adjust to changing economic conditions — whether responding to liquidity pressures, capital adequacy needs, or profit optimization goals.