Cooperatives are no longer permitted to lend or collect savings indiscriminately. With the approval of the Directives and Standards for Cooperatives Engaging in Savings and Loan Transactions, 2081, the Nepal Rastra Bank (NRB) has imposed strict limits on loan issuance and savings mobilization.
Although cooperative representatives had protested against such restrictions, the NRB introduced the new directives on Friday as a regulatory response to widespread misuse of cooperative funds, which had caused market distortions and harmed the public. The standards were approved by the central board of directives.
Under the new provisions, cooperatives can only collect savings from their members. According to the guidelines, savings collection is capped at 15 times the organization’s primary capital fund.
“The organization can borrow up to five percent of its total assets from banks, financial institutions, or cooperative banks. However, such borrowing cannot exceed 100 percent of the capital fund,” the directive states. “Cooperatives that invest 51 percent or more in collective guarantees may borrow up to 20 percent of their total assets or up to 10 times their capital fund.”
The maximum operational limits are set as follows: Rs 1m for cooperatives operating in one district, Rs 25m for those operating in more than one district, and Rs 50m for those covering more than one province.
Cooperatives can operate ordinary, regular, and periodic savings accounts for up to three years. However, at least 25 percent of total savings must be maintained as regular savings. The procedures for savings mobilization must be approved by the cooperative’s general assembly.
Deposits exceeding Rs 1m must be accompanied by disclosure of the source of funds. For monitoring financial resource limits, data from the previous quarter regarding primary capital, total capital, and assets will be used as the basis.
The organization cannot issue loans to members who have held membership for less than three months. Furthermore, it can lend up to a maximum of 15 percent of the primary capital fund per member, provided the member has been saving regularly. Loans without collateral must be backed by guarantees from at least two members and cannot exceed the borrower’s total savings. Directors may only borrow against the security of their own savings and are not allowed to take any additional loans.
Cooperatives are allowed to invest in shares of licensed cooperative banks, small farmers’ microfinance institutions, and government-issued bonds. However, they are prohibited from investing in shares or debentures of other institutions.
These regulations do not restrict the payment of membership fees to umbrella associations as permitted under the Cooperative Act 2017. Cooperatives may purchase or construct office buildings through a competitive and transparent process, provided they have been operating at a net profit for the past three consecutive years, have no accumulated losses, and maintain the minimum capital fund. Such investments must not exceed 25 percent of the primary capital or 50 percent of the reserve fund.
If property is acquired in violation of these conditions, the equivalent amount must be deducted from the primary capital fund during calculations. Property transactions require approval from at least 51 percent of the general assembly and must be reported to the regulatory body within 30 days.
Except for specialized cooperatives, organizations engaged in large-scale transactions are required to allocate at least 50 percent of their total loans to productive sectors such as agriculture, industry, and business development. Cooperatives that fall outside this threshold must comply by July 2026. In such cases, they may offer a grace period for repayment of interest or installments.
If a cooperative secures a loan from a bank or cooperative bank by pledging a member’s property, that member is prohibited from taking an additional loan exceeding the original amount borrowed. However, this does not apply to directors who pledge their personal property for institutional purposes.
Cooperatives may lend up to 90 percent of a member’s savings as a secured loan. For loans backed by immovable property, the loan-to-value (LTV) ratio is capped at 60 percent for properties in sub-metropolitan areas and 70 percent for properties in municipalities or rural municipalities.
Loans are to be categorized based on the repayment status of interest and installments. Loans repaid on time or within three months of maturity are considered good loans. Loans overdue by three to six months are non-performing, those overdue by six to 12 months are doubtful, and loans overdue by more than 12 months are classified as bad loans.
