Nepal Rastra Bank (NRB) has recently revised one of its earlier circular to ease the process of taking loan in foreign currency by the Nepalese company with foreign investment from their foreign investors.
According to the revised circular, Nepalese company with foreign investment can borrow money from its foreign investor (including the Parent company and Group of Companies) after providing required documents and approval from NRB. Such foreign investor can provide loan up to 60% of its capital/share investment in the Nepalese company or industry. The loan must be endorsed / recorded at NRB within 35 days once it is received by the Nepalese Company or Industry.
The interest rate of such loan shall be as below:
Interest rate shall not exceed 1 Year LIBOR + 3% p.a. (including all expenses / fees / commission relating to loan)
For Indian Investors, Interest rate shall be as per clause (a) above or it shall be upto 1 year marginal cost of funds based lending rate (MCLR) as per latest publication of Reserve Bank of India (including all expenses /fees/commission relating to loan)
For Chinese Investors, Interest rate shall be as per clause (a) above or upto 1 Year Loan Prime Rate (LPR) (including all expenses/fees/commission relating to loan).
Earlier there were lots of confusion regarding approval/process of loan to be taken from the foreign investor shareholders. Now, Nepal Rastra Bank has taken a very promising step to clarify the situation that will ultimately encourage the foreign investment in Nepal.
As per the revised circular, the Nepalese company/industry with foreign investment can borrow loan in foreign currency from their foreign investor shareholders (including parent and group companies). However there is restriction in the total amount that can be borrowed which is upto 60% of the share/capital investment by the foreign investor.
That means, if a foreign investor has invested NPR 50 million in the shares of a Nepalese company, then the company can borrow upto NPR NPR 30 million in foreign currency from the foreign investor.
This is a very good step taken by Nepal Rastra Bank. In long run, the limit of 60% may need to be increased.