KATHMANDU: Nepal Rastra Bank (NRB) has amended its unified directives, allowing banks and financial institutions to capitalize interest on loans for all long-term projects until they generate cash flow from commercial operations.

Under the new rule, a long-term project is defined as one that takes at least two years to start production.

Previously restricted to select sectors like hydropower and tourism, this facility now applies universally, relieving investors from the financial pressure of paying interest out of pocket during extended construction phases.

To prevent misuse, banks must develop distinct board-approved procedures for interest capitalization and track these funds under a separate “Interest Capitalized Term Loan” heading.

While extending the grace period for capitalization generally requires a 25% loan loss provision due to restructuring rules, NRB has introduced special concessions: hydropower projects delayed by a lack of transmission lines can partially capitalize interest without it being labeled as restructuring, and projects delayed by natural disasters can resume with a lower 12.5% provision.