New Definition of Major Shareholders in Banks and Financial Institutions by Nepal Rastra Bank

Nepal Rastra Bank has recently issued a directive that now considers individuals holding more than 0.5% of the total shares in banks and financial institutions as major shareholders. Previously, this threshold was set at 1%, but it has now been reduced to 0.5%. With this new limit, shareholders who exceed the 0.5% threshold will have to follow the same rules as other major shareholders.

• Loan Restriction: Shareholders holding more than 0.5% of shares will not be eligible to receive loans from the bank or financial institution in which they hold an investment.

• Special Facilities: However, such shareholders can still receive facilities such as 100% cash margin guarantees, credit card services up to a specified limit, and loans against term deposits or securities issued by the Nepal government or Nepal Rastra Bank.

• Institutional Shareholders: If the shareholder is an institution, the previous rule remains unchanged, allowing institutions holding up to 1% of shares to receive loan facilities from the concerned bank or financial institution.

• Reporting Requirement: Names of shareholders holding more than 0.5% of shares must be submitted to the Supervision Department of Nepal Rastra Bank semi-annually.

Nepal Rastra Bank has implemented these measures to prevent conflicts of interest and maintain transparency between shareholders and banks. The proposed amendments to the Bank and Financial Institutions Act further stipulate that those holding more than 1% of shares in any bank or financial institution will not be eligible for any form of loan.