Exposure Limits: Single Obligor, Group and Sector Concentration

The single obligor limit

Start with the constraint rather than the rule. A Nepali commercial bank’s exposure to one borrower is limited by reference to its core capital, and core capital across the system stood at 9.72% of risk-weighted assets at mid-April 2026. Because the limit is a percentage of a percentage, the absolute ticket a single bank can write is small against the size of the projects Nepal is trying to finance: hydropower, cement, transmission, cable car, hotel and airport projects that run into billions of rupees.

The limit itself is reported at 25% of core capital for most sectors, with higher reported allowances for productive sectors such as agriculture and export industry, and for hydropower projects holding a power purchase agreement. That figure could not be confirmed at primary level. Directive 3 of the Unified Directives 2082 did not extract from NRB’s published PDF, and the only attributable statement located dates from 2012. It is set out here because a reader needs the order of magnitude, and flagged because the current percentage should be taken from the directive.

The consequence is structural. Large Nepali financings are consortium financings, and the driver is a prudential limit rather than a preference for shared risk.

Group aggregation

An exposure limit expressed per borrower is only as strong as the definition of borrower. Nepal’s answer has two parts.

The first is aggregation across related parties: exposure to a group of connected borrowers counts as one exposure. The second is a coordination rule added under Directive 11 in December 2025. Every institution participating in a consortium must adopt the identical obligor group name for the borrower. That sounds administrative. It is the fix for a real gap. Where different lenders grouped the same corporate family differently, a group could carry more aggregate bank debt than any single lender’s records revealed. Forcing a common group identifier makes the aggregate visible to the Credit Information Bureau and to NRB.

Certain exposures are carved out. Personal residential home loans of NPR 30 million or less are excluded from the obligor limit calculation, raised from NPR 20 million in 2025.

NRB has also granted institution-specific exemptions where a public policy purpose required it, historically to allow a state importer to open letters of credit for fertiliser through a single bank. That discretion exists. It is not something a private borrower should plan around.

The NPR 2 billion consortium trigger

The sharpest rule in this area is not phrased as an exposure limit at all. A loan above NPR 2 billion extended without a consortium agreement is classified to Watchlist, which carries a 5% provision under Directive 2. The December 2025 amendment extended relief to pari passu short-term working capital arrangements.

Read that as NRB pricing a behaviour rather than prohibiting it. A bank may write a NPR 3 billion bilateral facility if it wishes, and it will carry NPR 150 million of provision from day one on a loan that is fully performing. No credit committee approves that twice.

For a sponsor, the implication is that any facility approaching NPR 2 billion should be structured as a consortium from the outset, with the lead arranger, the common security agent and the common obligor group name settled before documentation. Retrofitting a consortium onto a signed bilateral facility is expensive.

Sector caps and floors

Concentration limits run in both directions: a cap on how much a bank may lend to one place, and a floor on how much it must lend to another.

Caps. NRB has limited real estate and housing exposure to 25% of a bank’s total loans, and land purchase and development lending to 10%, with a general requirement not to lend above 50% of the fair market value of collateral. Those figures describe the position at mid-July 2023. The residential loan-to-value ratio was reset to 70% for all loan amounts in December 2025, which shows the family of limits is actively managed and that the others should be re-checked.

Margin lending against shares is capped at NPR 250 million per borrower across all licensed institutions combined, raised from NPR 150 million in July 2025. The aggregation across institutions is the point. A borrower cannot assemble a larger share-backed position by using several banks.

Floors. Directed lending removes a fixed share of the book from commercial allocation before a corporate borrower gets near it. The regime was substantially loosened by a unified directive amendment of 18 March 2026.

Requirement	Position to 2025	From mid-January 2027
Commercial bank priority-sector total	40% of credit	30% of credit
— agriculture	15%	10%
— energy, tourism, MSME, IT, domestic-raw-material industry	separate sub-targets totalling 25%	combined 20%
Development banks	20%	20%
Finance companies	14%	15%
Deprived sector, all classes	5%	5%

Over-performance in agriculture above the 10% floor may now be counted against a shortfall elsewhere in the basket, which is a significant softening. Deprived-sector lending ran at 6.47% system-wide at mid-July 2023, comfortably above the 5% requirement.

The loosening had a cause. Agriculture accounted for 23.5% of all non-performing loans at mid-April 2026, and microfinance institutions, the principal vehicle for deprived-sector compliance, reached an 11.32% NPL ratio. Directed credit at scale into sectors with weak collateral and thin cash flow produced exactly the asset quality one would expect, and NRB has been reducing the quota rather than defending it.

Related-party lending

Separate from any percentage limit, BAFIA section 50 bars a bank from extending any credit facility to its directors, to any person holding 1% or more of its paid-up capital, to its chief executive, to family members of those persons, or to entities related to them. This is a prohibition rather than a limit, and it is the provision most often overlooked by an incoming investor structuring a shareholding alongside a commercial relationship with the same bank.

An investor taking a stake at or above 1% in a Nepali bank should assume that the bank can no longer bank the investor’s group.

When the limits bind

Four routes are used, and each has costs set out elsewhere in this cluster.

Consortium. The default for anything above NPR 2 billion. Slower, and it introduces intercreditor negotiation into a market with limited precedent for it.

Offshore debt. Borrowing in foreign currency requires NRB approval under the foreign exchange regime, brings currency risk against a pegged but administered rate, and imposes withholding on interest. See Nepal’s Foreign Exchange Regime: The Indian Rupee Peg, Convertibility and Capital Controls and Cross-Border Money: FDI Inflows, Repatriation, Foreign Loans and Trade Finance.

Equity, or the Investment Board route. Projects above the Investment Board of Nepal threshold are approved centrally and may attract facilitation that a purely commercial financing would not.

Splitting the borrower. Attempted, and increasingly ineffective, because group aggregation and the common obligor group name are designed to defeat it. A structure that relies on separate legal entities within one economic group being treated as separate obligors should be assumed to fail.

Sources

1. Financial Stability Report, FY 2022/23

   Nepal Rastra Bank · June 2024; data to mid-July 2023 · Tier 2 — Official publication

   Supports: The deprived-sector requirement of 5% and sector performance of 6.47%; the priority-sector targets of 15% agriculture, 10% energy and 15% MSME for commercial banks by mid-July 2025, 20% for development banks and 14% for finance companies; the real estate and housing cap of 25% of total loans and the 10% cap on land purchase and development lending; and the 50% loan-to-value limit against fair market value of collateral.

   Accessed 26 August 2026

2. Flash Alert on Circular No. 08/082/83

   PKF T R Upadhya and Co. · Circular dated 15 December 2025 · Tier 6 — Professional or news source

   Supports: The Watchlist classification of loans above NPR 2 billion made without a consortium agreement and its extension to pari passu short-term working capital; the requirement that consortium members adopt an identical obligor group name; and the revision of the residential home loan loan-to-value ratio to 70% for all amounts.

   Accessed 26 August 2026

3. PKF TRU Newsletter, August 2025

   PKF T R Upadhya and Co. · August 2025 · Tier 6 — Professional or news source

   Supports: The increase in the margin lending limit against shares from NPR 150 million to NPR 250 million across all licensed institutions combined, under Directive 3; and the exemption of personal residential home loans up to NPR 30 million from the obligor limit calculation.

   Accessed 26 August 2026

4. NRB eases directed lending rules, broadens priority sectors

   Clickmandu · March 2026, reporting a unified directive amendment of 18 March 2026 · Tier 6 — Professional or news source

   Supports: The reduction of the commercial bank priority-sector quota from 40% to 30%, the reduction of the agriculture sub-target from 15% to 10%, the merger of energy, tourism, MSME, information technology and domestic-raw-material industry into a single 20% requirement, the offsetting of agricultural over-performance against other shortfalls, and the effective date of mid-January 2027.

   Accessed 26 August 2026

5. Priority lending is dragging down Nepali banks into huge bad debt

   The Kathmandu Post · 3 July 2026 · Tier 6 — Professional or news source

   Supports: The composition of the directed lending requirement after the March 2026 revision, the retention of the 5% deprived-sector requirement, and that agriculture accounted for 23.5% of total non-performing loans at mid-April 2026.

   Accessed 26 August 2026

6. AIC exempted from Single Obligor Limit

   ShareSansar · 2 December 2012 · Tier 6 — Professional or news source

   Supports: The only attributable statement located of the single obligor limit as 25% of core capital for most sectors, with higher reported allowances for productive sectors and for hydropower projects holding a power purchase agreement, and the practice of granting institution-specific exemptions.

   Accessed 26 August 2026

7. Bank and Financial Institution Act, 2073 (2017) — unofficial English translation

   Nepal Rastra Bank · Act 2017; translation posted 2019 · Tier 1 — Primary legal instrument

   Supports: Section 50, prohibiting credit facilities to directors, holders of 1% or more of paid-up capital, the chief executive, and family members and related entities of such persons.

   Accessed 26 August 2026

8. 2082 Chait (Mid-April 2026) Banking and Financial Statistics (Monthly)

   Nepal Rastra Bank · Data to mid-April 2026 · Tier 2 — Official publication

   Supports: Core capital of 9.72% of risk-weighted assets and total system credit of NPR 5,906.4 billion at mid-April 2026, used to size the practical scale of a single-bank exposure.

   Accessed 26 August 2026