Banks and financial institutions (BFIs) have witnessed nearly a 20 percent surge in their investment in the share collateral loans in a year.

Such loans provided by the BFIs surged from Rs 76.41 billion by mid-August 2023 to Rs 91.44 billion by mid-August 2024, the Nepal Rastra Bank (NRB) data show.

Investors and analysts attribute the rise to the Nepal Rastra Bank's (NRB) flexible monetary policy and NEPSE’s bull run from June-end to mid-August this year. The NEPSE’s index surged past 3,000 point-mark from the 2,200-mark in the period.

Commercial banks, in particular, have seen a 22 percent rise in their investment in share collateral loans in the period from Rs 58.9 billion to Rs 71.79 billion.

NRB’s statistics shows that by Asar (mid-June to mid-July) 2021, commercial banks' investment in share collateral loans amounted to Rs 80.5 billion. But, the amount shrunk to Rs 76.3 billion by the same month in 2022.

Three years ago, NRB imposed limits on share collateral loans to mitigate investments in less productive sectors.

Initially, an individual could borrow up to Rs 40 million, and an  institution up to Rs 120 million. However, the limit was increased to Rs 120 million for an individual and Rs 200 million for an institution in the last fiscal year, 2023/24.

Through the monetary policy for the current fiscal year, the NRB has lifted the cap for institutional investors.

Seasoned investor Chhote Lal Rauniyar attributed the increase in such loans to excess liquidity and lower interest rates. “With interest rates now in single digits, securing loans from banks has become more accessible for share investors,” Rauniyar said.

Investors have seized the opportunity to expand their portfolios by acquiring significant loans from banks and financial institutions.

Following the power-sharing agreement between the two major political parties, UML and Nepali Congress, the stock market saw a steep upward trend, surging past 3,000 point-mark.

The NEPSE index has, however, fallen below the 2,600 point this week. Daily turnover has also seen a decline from around Rs 30 billion at its peak to Rs 5.66 billion on Wednesday. 

Profit booking from short term investors and negative publicity have affected the market performance, analysts say.

Concerned by poor market performance in recent days, Finance Minister Bishnu Paudel on Wednesday visited NEPSE’s office in Bhadrakali, Kathmandu.

Claiming that the present government has ensured political stability, Paudel said that the current bearish trend warrants thorough analysis, reported RSS, the state-owned news agency.