KATHMANDU, Oct 6: Nepal Rastra Bank (NRB) has relaxed the limits on investments that banks and financial institutions (BFIs) can make abroad.
Through an amendment to the 'Unified Circular-2025' issued by its Foreign Exchange Management Department, the central bank has granted BFIs additional flexibility to invest in low-risk financial instruments, including foreign government bonds.
Under the revised provisions, BFIs are permitted to invest up to an additional 10 percent of their total investment limit in highly liquid foreign government bonds issued by countries holding an international credit rating of 'A-' or higher. Such investments can be increased up to a maximum of 50 percent for a maximum of five years’ period.
Previously, BFIs were permitted—subject to their internal policies—to invest funds held in agency accounts into low-risk instruments such as call deposits and certificates of deposit (with tenures of one year or less) without adversely affecting daily liquidity. There was also a provision allowing investment of up to 40 percent of the total balance held in agency banks into such instruments with tenures of up to two years.
Revised interest rate corridor system introduced
According to the NRB, the revised arrangement expands the scope for investment in highly liquid foreign government bonds.
Additionally, provisions have been made allowing the BFIs to invest in hedging services—used to manage foreign exchange risk associated with foreign currency loan facilities or supplier credit for capital goods imports—obtained by sectors such as information technology, commercial agriculture, manufacturing, infrastructure development, tourism, and energy. The maximum investment tenure for such financial instruments is set at five years.
Meanwhile, the NRB has also relaxed its foreign currency exchange facilities regarding the import of medical treatment services, telecommunications equipment, and aviation equipment.
Through the revised directive, the central bank has arranged for Nepali citizens to access an annual foreign currency exchange facility of up to US $30,000 for the purpose of undergoing medical treatment at hospitals abroad and purchasing necessary medicines and medical equipment. Previously, this limit was $15,000.
According to the NRB, Nepali airline companies can now make advance payments of up to $500,000 through BFIs for importing items such as aircraft engines or spare parts, based on documents including recommendations from the relevant regulatory body. A bank guarantee from a foreign bank is not required for this purpose. Previously, this limit was $100,000.
Additionally, provisions have been made allowing Nepali telecommunications service providers to make annual payments of up to $500,000 for leasing or using satellite services under agreements with foreign service providers.
Similarly, for payments regarding service imports from countries other than India, commercial banks can now provide exchange facilities of up to $30,000 (or an equivalent amount) per transaction, based on agreement/consent approvals or exchange recommendations from the regulatory body, double from the previous limit of $15,000.
Regarding service imports from India, a provision has been made allowing commercial banks to provide exchange facilities for payments of up to INR 6 million per transaction. Previously, this limit was INR 4 million.
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