Kathmandu: Nepal Rastra Bank (NRB) has postponed the implementation of the variance analysis provision under the Working Capital Loan Guidelines, 2022 for another year, offering relief to banks, financial institutions, and businesses that had warned of serious operational and financial challenges.
In a circular issued on Wednesday, the central bank announced that the provision will now come into force from the beginning of fiscal year 2027/28, extending the previous deadline that was due to expire on the first day of FY 2026/27.
The decision follows repeated requests from the banking industry and the private sector, which argued that the existing timeline was impractical and could adversely affect credit flow and business operations.
What Is the Variance Analysis Provision?
Under the working capital loan guidelines, banks and financial institutions are required to conduct a variance analysis by comparing the projected financial statements submitted by borrowers with their actual financial performance.
The objective is to ensure that working capital loan limits are based on realistic business performance rather than overly optimistic financial projections.
Borrowers must submit projected financial statements every year, and once a working capital loan is approved, the sanctioned limit cannot be revised until audited financial statements become available.
Loan Adjustment Deadline Also Extended
The NRB guidelines require banks to sanction, renew, and review working capital loans strictly in accordance with the prescribed framework.
Businesses are allowed to obtain working capital loans of up to 25 percent of their annual turnover. Companies with borrowings exceeding this threshold were originally required to adjust their loan exposure by mid-July 2025.
Following two successive extensions, borrowers now have until mid-July 2027 to comply with the revised limit.
Relief for Banks and Borrowers
The latest extension is expected to prevent significant pressure on Nepal’s banking sector.
Had the rule taken effect immediately, banks would have been required to classify working capital loans exceeding the prescribed limit as 100 percent loss assets, substantially increasing non-performing loans (NPLs) and weakening banks’ capital adequacy.
Bankers had warned that such a move could have disrupted lending activities and further tightened credit availability at a time when private sector borrowing remains sluggish.
IMF-Backed Reform Faces Practical Challenges
The Working Capital Loan Guidelines were introduced by the NRB in October 2022 as part of broader financial sector reforms supported by the International Monetary Fund (IMF).
However, business associations have consistently sought greater flexibility, arguing that rigid implementation does not adequately reflect the realities of different industries and could constrain business growth.
The latest extension provides both lenders and borrowers additional time to align their financing structures with the regulatory framework while allowing policymakers to address implementation challenges before the provision becomes mandatory.
