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Nepal Rastra Bank (NRB) has adopted a more flexible approach to direct sector lending by granting banks and financial institutions an additional year to meet mandatory credit flow targets for specific priority sectors.

Through an amendment to its Unified Directives for Banks and Financial Institutions, the central bank extended the deadline to meet minimum lending requirements in agriculture and small and medium enterprises (SMEs). Previously, commercial banks were required to meet these sectoral lending thresholds by mid-July 2027. With the revision, banks now have until mid-July 2028 to comply.

Under the new provision, commercial banks must gradually increase credit exposure in agriculture and SMEs to reach 15 percent of their total loan portfolio by mid-2028. The phased targets require banks to achieve 11 percent by mid-July 2025, 12 percent by mid-July 2026, 13 percent by mid-July 2027 and 15 percent by mid-July 2085. Previously, banks were expected to achieve 12 percent by this fiscal year, 13 percent by mid-2026 and 15 percent by mid- 2027.
Similarly, development banks are now required to channel at least 20 percent of their total loans into agriculture, cottage, small-scale industries, energy, and tourism by the extended deadline of mid-July 2028. Likewise, Class ‘C’ finance companies must disburse at least 15 percent of their total loans to these sectors by mid-July 2028.

NRB has also introduced flexibility for commercial banks that have already met the minimum lending requirement in the agriculture sector but are struggling to meet quotas in other areas. These banks are now allowed to allocate the shortfall to their area of expertise, provided the total lending across all targeted sectors meets the required percentage.

In addition, the central bank has allowed restructuring and rescheduling of loans up to Rs. 20m disbursed in agriculture, energy, and SMEs, if the borrower faces financial difficulties. The provision allows a one-time rescheduling based on the borrower’s request and a detailed assessment of the business plan and cash flow, provided at least 10 percent of the due interest has been recovered.

However, NRB has imposed strict conditions on such restructuring. As per the new provision, restructuring must be completed by mid-September, the restructured loan must retain at least the same risk classification as of mid-December last year and previously made loss provisions cannot be reversed during restructuring.

At 10:30 am, Dundrup Tsering, a businessperson from Nepal, waited at Lektse Port in the city of Xigaze, southwest China's Tibet Autonomous Region, carrying two large bags. “I’ve been doing business here since the opening of the port in Nov 2023, and my family’s living conditions have improved significantly,” said Dundrup Tsering.

In the past, traders set up stalls at traditional border trade points under simple tents with no fixed locations. Their goods were often damaged by rain or snow, and access to basic facilities like toilets was a constant challenge. The opening of the port and the completion of a modern trade market have significantly improved conditions. “We have moved into a proper market with better conditions. It is more convenient and rent-free,” said Dundrup Tsering. “My family had almost no income before the port opened. Now we no longer worry about food or clothing.”

Beyond boosting employment, the new and reopened ports along the China-Nepal border have accelerated regional cross-border trade. “Our products are specifically designed for Nepal’s needs,” said Jiang Zhengguang, chairperson of a machinery company located approximately an hour’s drive from the port of Gyirong.

In the company’s four bright and tidy workshops, workers were busy producing vehicles for export. “We’ve developed innovative new energy vehicles (NEVs) for Nepal’s rugged mountain roads, steep slopes, and high load requirements,” Jiang added. “Nepali customers said that our vehicles offered top-tier quality and performance. We expect annual exports to exceed 2,000 units.”

With the reopening of the ports of Zham, Gyirong and Burang in 2023, NEVs can now reach Nepal from manufacturing hubs within ten days. From January to May this year, Xizang’s import-export volume with Nepal reached about $249m, up 14 percent year on year, according to Lhasa Customs.

To facilitate trade, Lhasa Customs has established a green channel, supporting 24-hour advance declarations, and providing one-on-one assistance. Exports of NEVs, local wool, and fresh fruits are increasing, while imports of Nepalese medicinal herbs and silage fodder continue to diversify as more categories gain market access.

Since 2021, Xizang’s trade with South Asian Association for Regional Cooperation (SAARC) members has totaled $2.08bn, with Nepal accounting for 87 percent. The land ports between China and Nepal have played a vital role.

The Nepal Stock Exchange (NEPSE) gained 1.08 points to close at 2,601.84 points on Tuesday.

Similarly, the sensitive index surged by 0.52 points to close at 445. 59 points.

A total of 13,818,559-unit shares of 316 companies were traded for Rs 5. 76 billion.

Meanwhile, Om Megashree Pharmaceuticals Limited (OMPL) was the top gainer today, with its price surging by 1. 01 percent.

Likewise, 10% NIC Asia Debenture 2085/86 (NICAD85/86) was the top loser as its price fell by 5. 17 percent.

At the end of the day, total market capitalization stood at Rs 4. 33 trillion.

The government’s decision to sign Power Purchase Agreements (PPAs) for run-of-river (ROR) hydropower projects on the ‘take-and-pay’ model has triggered strong opposition from the private sector. Independent power producers (IPP) say this policy shift could affect the development of over 350 projects with a combined capacity of 17,117 MW, putting Rs 109bn already invested in studies and preparations at risk.

Under the ‘take-and-pay’ model, the Nepal Electricity Authority (NEA), the only entity in the country involved in energy trading, will only pay developers for electricity it actually purchases and uses. This means if NEA does not consume the electricity, producers receive no payment. This means there is no guaranteed revenue stream for developers which makes it difficult to attract investment or secure financing.

The private sector has long advocated for the ‘take-or-pay’ mode in which NEA is obligated to pay for a pre-agreed amount of electricity, whether or not it is actually used. This model assures developers of predictable revenue and has historically been key to attracting private investment in Nepal’s hydropower sector.

The Independent Power Producers’ Association Nepal (IPPAN) says the new policy sends a message that the government no longer welcomes private investment in run-of-river hydropower. IPPAN Senior Vice-president Mohan Kumar Dangi said this policy effectively tells private developers to stop investing in hydropower. “After issuing survey licenses and signing connection agreements, it now wants to deny payment guarantees,” Dangi added. 

IPPAN has warned that this policy could lead to the suspension of over 350 hydropower projects and write off Rs 109bn already invested and a potential Rs 3.3trn in future investments may never come. The government would forgo Rs 327bn during construction and up to Rs 3.1trn post-completion revenue. The government has set an ambitious target of generating 28,500 MW of electricity over the next 10 years. Nepal also has agreements to export electricity to India and Bangladesh (40 MW). If new projects are not developed, these targets may be unachievable, said IPPAN Deputy Secretary-General Prakash Dulal. 

Banks are unlikely to invest in projects under the Take and Pay model, making financing more difficult and undermining the perceived security of hydropower investments. On average, a 1 MW project provides employment to 100 people for 2–3 years and 10 people permanently after completion. “This change will spike unemployment by halting project development,” Dulal added.

The hydropower sector also drives demand in cement, steel, and transportation industries. If the 17,117 MW worth of projects are scrapped, the estimated direct losses across sectors include: Rs 355bn in cement, Rs 235bn in steel, Rs 250bn in construction materials and transport, Rs 175bn in fuel, Rs 894bn in labor income, Rs 659bn in imports, and Rs 257bn in interest—totaling over Rs 2.8trn.

NEA Executive Director Hitendra Dev Shakya admits that while production capacity has grown, investment in transmission infrastructure has lagged. “We focused on generation, but not enough on transmission,” he said. “Of the Rs 900bn invested so far in generating around 3,600 MW, only a fraction has been spent on transmission, which should have accounted for at least 20 percent.”

With many ROR projects peaking during the rainy season and falling to just 25 percent capacity in winter, Nepal still relies on imports from India during dry months. NEA currently buys about 300 MW on a contingency basis—only when needed. 

“If transmission lines aren’t built, even projects with ‘take-or-pay’ PPAs may end up being paid under ‘take-and-pay’ terms because NEA can’t evacuate the power,” Shakya said. “We did not suggest that the government adopt ‘take-and-pay’ for ROR projects. We only asked for investment in transmission.”

Shakya, however, said the private developers should not be alarmed by the new policy. “NEA has published a notice for 11,080 MW being developed by the private sector, 700 MW being developed by the NEA and 5,000 MW being developed by Indian companies to sign PPA,” he said. “Rather, the private sector should focus on financial closure for the 4,100 MW of projects that already have PPAs but have made no progress in financing for years.” 

He added that the government was preparing to bring new regulations to allow private investment in transmission lines and offer ‘take-or-pay’ PA for projects with secured markets and grid connectivity.

Energy Secretary Suresh Acharya, however, said there is no alternative to the ‘take-or-pay’ model. “The Hydropower Development Roadmap also envisions ‘take-or-pay’, so we must stick with it,” he said. “While the model is necessary, some regulatory restrictions may be required to avoid blanket guarantees.”

Meanwhile, lawmakers and energy experts have also strongly criticized the decision calling it “unfortunate” and “harmful” to Nepal’s energy sector. Speaking at a program organized by the Society of Infrastructure Journalists Nepal on Monday, they urged the government to immediately revise the provision to protect the country’s hydropower development.

Deepak Bahadur Singh, Chair of the Parliamentary Infrastructure Development Committee, said the budget was biased and pledged to initiate fair decisions to safeguard the sector. “Over 6m Nepali citizens have invested in the energy sector. We must act in their collective interest,” he said. Lawmaker Urmila Majhi called it “shameful” that the government officials who drafted the budget were unaware of the implications of the Take and Pay model. Fellow lawmaker Bina Lama said the parliamentary committee would summon concerned stakeholders for discussion and push for a revision. MP Nisha Dangi warned the policy would fail, and Dinesh Kumar Yadav said they are raising the issue in Parliament to have it repealed. MPs Mahesh Basnet, Sushila Shrestha, and Shiva Nepali also pledged to take corrective action.

Former National Planning Commission Vice-chair Govind Raj Pokharel said the budget targets sectors that create employment, showing the government’s insensitivity to energy infrastructure challenges.

Ganesh Karki, President of the IPPAN, said if the provision is not amended, not a single hydropower project would be built under the new fiscal budget. “The energy sector is under siege and needs urgent support,” he stated.