Banks and financial institutions (BFIs) in Nepal have received major relief after the Supreme Court of Nepal struck down the legal provision requiring them to sell non-banking assets within three years.
A five-member Constitutional Bench led by Acting Chief Justice Sapana Malla Pradhan, along with Justices Kumar Regmi, Hari Prasad Phuyal, Manoj Kumar Sharma, and Nahakul Subedi, issued the verdict on Monday.
The court delivered the ruling while hearing a writ petition filed by advocate Sagar Adhikari on behalf of the Confederation of Banks and Financial Institutions Nepal (CBFIN). The Constitutional Bench concluded that the provision conflicted with constitutional principles and ordered its annulment.
Before the ruling, BFIs were legally required to sell non-banking assets within three years after acquiring them during loan recovery processes. If the assets could not be sold within the deadline, banks needed government approval to retain them further. The Supreme Court has now repealed both requirements.
The court had earlier issued an interim order in December directing the government not to enforce the provision.
Non-banking assets generally refer to fixed properties pledged as collateral by borrowers and later auctioned by banks when loans turn into bad debt. Banks are allowed to adjust the provisioning amount of bad loans based on the value recovered from such collateral sales.
According to bankers, the ruling will ease pressure on BFIs, which have recently experienced a sharp rise in non-banking assets due to growing loan defaults and repayment delays.
Data from Nepal Rastra Bank shows that the total non-banking assets held by BFIs reached Rs 50.55 billion by the end of the last fiscal year, while commercial banks alone accounted for more than Rs 42.11 billion. Currently, BFIs collectively hold non-banking assets worth approximately Rs 51.33 billion.
