Security documentation for corporate loans in Nepal March 03, 2026 - BY Admin

Security documentation for corporate loans in Nepal

Security documentation for corporate loans in Nepal is governed by the Secured Transactions Act, 2006, National Civil Code, 2074 (2017), and Nepal Rastra Bank (NRB) prudential regulations. The legal framework distinguishes between immovable property (land, buildings) and movable assets (machinery, inventory, receivables), with different perfection mechanisms for each category. A landmark development in 2025 is the enactment of the Secured Transactions Bill, 2023, which for the first time allows intellectual property and intangible assets to serve as collateral for loans, significantly expanding borrowing capacity for Nepalese businesses.

Legal Framework for Security Documentation

Primary Legislation

The Secured Transactions Act, 2006 establishes the foundational framework for creating, perfecting, and enforcing security interests over movable property. The Act was designed to facilitate access to finance by enabling businesses to use movable assets as collateral, though its full implementation has been hampered by the non-establishment of the Secured Transactions Registration Office (STRO).

The National Civil Code, 2074 (2017) governs immovable property mortgages through Chapter 12, recognizing two primary mortgage types:

  • Mortgage with possession (Bhogbandaki): Mortgagee holds physical possession of property
  • Mortgage without possession (Drishtibandhaki): Mortgagor retains possession while granting security interest

The Companies Act, 2063 (2006) provides for the creation of charges over company assets, requiring registration with the Office of Company Registrar (OCR) for certain security interests.

Recent Legislative Development: Secured Transactions Bill, 2023

In a significant reform, the Secured Transactions Bill, 2023 received presidential assent in 2025, introducing:

New ProvisionImpact
IP-backed lendingPatents, trademarks, copyrights eligible as collateral
Comprehensive movable collateralMachinery, mineral rights, livestock, agricultural crops, processed food products
Central registry establishmentNew registrar's office for movable asset transactions
Notice filing systemPublicity of security interests and priority determination

This reform addresses the long-standing limitation where banks could only lend against tangible, immovable property unless NRB specified otherwise.

Types of Collateral for Corporate Loans

Immovable Property (Real Estate)

Collateral TypePerfection MechanismGoverning Law
Land and buildingsRegistration at Land Revenue OfficeNational Civil Code 2074, Lands Act 2021
Leasehold rightsLease agreement registration + mortgage deedCivil Code, Contract Act
Under-construction propertiesHypothecation + completion guaranteesBAFIA 2073, NRB directives

Mortgage Registration Process:

  1. Execution of mortgage deed (Sadhan Sambandhi Dastawez) on stamp paper
  2. Submission to Land Revenue Office (Malpot) within 35 days
  3. Payment of registration fees (typically 4-10% of property value)
  4. Entry in Land Record Information System (LRIS)
  5. Issuance of updated Lalpurja (ownership certificate) with mortgage notation

Movable Property

Collateral CategoryExamplesPerfection Status
Machinery and equipmentManufacturing equipment, vehiclesSTRO registration (when operational)
Inventory and stockRaw materials, finished goodsPossession-based or STRO filing
ReceivablesTrade debts, book debtsAssignment + notice to debtors
Bank depositsFixed deposits, savings accountsPledge + bank acknowledgment
Investment securitiesShares, bonds, debenturesDemat account pledge + NEPSE notification
Intellectual propertyPatents, trademarks, copyrightsNew: IP Office registration + STRO filing

Special Categories

Cash Collateral:

  • Fixed deposit receipts (FDRs) pledged with lending bank
  • Margin requirements for letters of credit and guarantees
  • Escrow accounts for project financing

Personal Guarantees:

  • Corporate guarantees from parent/sister companies
  • Personal guarantees of promoters/directors
  • Comfort letters for group company exposures

Security Perfection Requirements

Immovable Property Perfection

Essential Steps:

StepActivityAuthorityTimeline
1Title verification and due diligenceLand Revenue Office3-7 days
2Valuation by certified valuerNepal Valuers' Association member5-10 days
3Mortgage deed executionBefore notary publicSame day
4Registration at Land Revenue OfficeLand Revenue Office1-3 days
5Encumbrance certificate updateLand Revenue OfficeImmediate

Key Requirements:

  • Clear title (Lalpurja) free from prior encumbrances
  • Tax clearance certificate for property
  • No legal disputes or court holds
  • Compliance with land use regulations
  • Pre-emption rights check (neighbors/relatives have 35-day claim period)

Movable Property Perfection

Current Framework (Pre-STRO Operationalization):

Collateral TypePerfection MethodEnforceability Risk
MachineryHypothecation deed + possessionHigh - no public registry
InventoryFloating charge + stock statementsVery high - difficult to verify
ReceivablesAssignment deed + debtor noticeModerate - dependent on debtor cooperation
SharesPledge agreement + demat transferLow - NEPSE registry provides transparency
Bank depositsPledge + lien markingVery low - bank's own records

Post-STRO Operationalization (Expected):

  • Notice filing with Secured Transactions Registration Office
  • Priority determination based on filing date
  • Public search capability for existing security interests
  • Streamlined enforcement procedures

Company Charge Registration

Under Companies Act, 2063, certain security interests require OCR registration:

Charge TypeRegistration RequirementConsequence of Non-Registration
Mortgage of immovable propertyMandatory within 30 daysCharge void against liquidator/creditors
Hypothecation of movable propertyMandatory for company assetsUnenforceable in winding-up
Pledge of sharesMandatory if company is pledgorPriority issues in enforcement
Floating chargeMandatory for current assetsInvalid against subsequent creditors

OCR Registration Process:

  • Filing of Form 10 (Particulars of Charges)
  • Attachment of security instrument
  • Payment of registration fee (NPR 500-2,000 depending on secured amount)
  • Certificate of charge registration

Documentation Requirements by Loan Type

Term Loan Security Package

DocumentPurposeExecution Requirements
Loan AgreementPrimary credit facility termsBoard resolution, authorized signatories
Mortgage DeedImmovable property securityNotarized, registered at Land Revenue Office
Hypothecation AgreementMovable asset securityBoard resolution, asset schedule attached
Promissory NoteEvidence of debtStamped, executed by borrower
Letter of ContinuityContinuing security for revolving facilitiesCross-referenced to primary documents
Guarantee DeedsThird-party liability supportGuarantor board resolution, notarized
Security Trustee AgreementFor syndicated/consortium loansInter-creditor arrangement documentation

Working Capital Security

DocumentPurposeSpecial Features
Hypothecation of StocksInventory financingFloating charge, periodic stock statements
Book Debt AssignmentReceivables financingNotice to major debtors, collection account control
Cash Credit AgreementOverdraft facilityDrawing power calculations, margin maintenance
Letter of Credit FacilitiesTrade financeCash margin, shipping document control

Project Finance Security

DocumentPurposeProject-Specific Elements
Project Assets MortgageImmovable project propertyStep-in rights, completion guarantees
Assignment of Project AgreementsOff-take contracts, EPC contractsDirect agreements with counterparties
Escrow Account AgreementCash flow controlWaterfall payment priorities
Completion GuaranteeConstruction risk mitigationParent company or sponsor guarantee
Performance BondsContractor performance securityBank/insurance company instruments

NRB Prudential Requirements

Loan-to-Value (LTV) Ratios

Collateral TypeMaximum LTVAdditional Requirements
Residential real estate70-80%Valuation by approved valuer
Commercial real estate60-70%Title insurance recommended
Industrial machinery50-60%Insurance coverage mandatory
Inventory (finished goods)40-50%Regular stock audits
Raw materials30-40%Quality and marketability assessment
Receivables60-70%Creditworthiness of major debtors
Bank deposits90-95%Same bank or approved correspondent
Listed securities50-70%Margin maintenance, price monitoring

Single Obligor and Concentration Limits

  • Class A banks: Maximum 25% of core capital to single borrower/group
  • Consortium financing: Mandatory for exposures exceeding NPR 2 billion
  • Sector concentration: Monitoring for real estate, construction, hydropower

Foreign Currency Loan Security

For foreign loans approved by NRB:

  • Security documentation must comply with NRB Foreign Investment and Loan Management Bylaws
  • Registration of security with NRB for monitoring
  • Foreign exchange risk hedging requirements
  • Repatriation approval coordination for enforcement proceeds

Enforcement of Security

Immovable Property Enforcement

Enforcement RouteProcessTimeline
Judicial foreclosureCourt application under Civil Code Chapter 122-5 years
Power of saleIf mortgage deed includes power of sale clause6-12 months
Private treatyNegotiated sale with mortgagor cooperation3-6 months
AuctionPublic auction under court supervision1-2 years

Civil Code Provisions:

  • Interest rate capped at 10% annually on mortgage loans
  • Maximum mortgage duration: 10 years (with possession), 5 years initially (without possession)
  • Redemption right: Mortgagor may redeem anytime by repaying loan

Movable Property Enforcement

Self-Help Remedies (Post-STRO):

  • Repossession without judicial order for certain collateral types
  • Sale or disposition of collateral after notice
  • Application of proceeds to debt satisfaction

Current Practice (Pre-STRO):

  • Judicial intervention typically required
  • Writ of attachment from court
  • Court-supervised sale or auction
  • Protracted timelines due to procedural requirements

Cross-Border Security Considerations

Foreign Law Governing Security

For international syndicated loans:

  • English or New York law often governs security agreements
  • Recognition and enforcement under Nepalese law requires:
  • Proper authentication and legalization
  • Compliance with foreign exchange regulations
  • NRB approval for foreign security interests

Parallel Security Structures

StructureApplicationDocumentation
Local securityAssets located in NepalNepalese law documentation, local registration
Offshore securityAssets held abroadForeign law documentation, foreign registration
Share pledgeForeign holding company sharesLaw of share location, NRB notification

Frequently Asked Questions About Security Documentation

What types of collateral can be used for corporate loans in Nepal?

Collateral types Nepal include: immovable property (land, buildings), movable assets (machinery, vehicles, inventory), receivables, bank deposits, investment securities, and now under the 2023 Secured Transactions Bill, intellectual property (patents, trademarks, copyrights).

How is a mortgage registered in Nepal?

Mortgage registration Nepal requires: execution of mortgage deed on stamp paper, submission to Land Revenue Office within 35 days, payment of registration fees (4-10% of property value), verification of title and tax clearance, and entry in the Land Record Information System (LRIS).

What is the Secured Transactions Act 2006?

The Secured Transactions Act 2006 Nepal provides the legal framework for creating security interests over movable assets, establishing priority rules, and enabling enforcement. However, the Act has not been fully operational due to the non-establishment of the Secured Transactions Registration Office (STRO), limiting its practical effectiveness.

Can intellectual property be used as loan collateral in Nepal?

Yes, the Secured Transactions Bill 2023 (enacted 2025) explicitly allows intellectual property rights—patents, trademarks, copyrights—to serve as collateral for loans, creating new financing opportunities for technology and creative industries.

What is the difference between mortgage with possession and without possession?

Mortgage with possession (Bhogbandaki): Mortgagee holds physical possession of property, maximum 10-year duration. Mortgage without possession (Drishtibandhaki): Mortgagor retains possession, initially 5-year term, renewable. Both require Land Revenue Office registration under Civil Code 2074.

What happens if security documentation is not properly perfected?

Imperfect security consequences include: unenforceability against liquidators in company winding-up, loss of priority to subsequent creditors, inability to foreclose or repossess collateral, and treatment as unsecured creditor in bankruptcy proceedings.

Are there any restrictions on foreign banks taking security in Nepal?

Foreign bank security Nepal is permitted subject to NRB approval for the underlying loan. Security documentation must comply with Nepalese registration requirements, and enforcement proceeds may require NRB approval for repatriation.

What is the role of the Office of Company Registrar in security documentation?

OCR charge registration is mandatory for company-created security interests. Non-registration renders charges void against liquidators and creditors. Registration provides public notice and priority protection.

How are security interests enforced in case of default?

Security enforcement Nepal involves: judicial foreclosure proceedings (2-5 years), power of sale if contractually provided (6-12 months), private treaty sale with cooperation, or court-supervised auction. Movable asset enforcement is more complex due to lack of operational STRO.

What documentation is required for a complete security package?

Complete security documentation Nepal includes: loan agreement, mortgage/hypothecation deeds, promissory note, guarantee deeds, board resolutions, security trustee agreement (for syndicated loans), insurance policies, and perfection certificates from relevant registries.

Professional Security Documentation Services

Attorney Nepal Pvt. Ltd. provides comprehensive security documentation services for corporate loans in Nepal, including:

  • Collateral structuring and security design optimization
  • Mortgage documentation and Land Revenue Office registration
  • Movable asset security documentation (hypothecation, pledge, assignment)
  • IP-backed lending documentation under new 2023 Act
  • Company charge registration with OCR
  • Syndicated loan security and inter-creditor arrangements
  • Cross-border security coordination and perfection
  • Security enforcement strategy and litigation support
  • Due diligence for existing security portfolios
  • NRB compliance and prudential requirement advisory

Contact Attorney Nepal Pvt. Ltd. to ensure security documentation for corporate loans in Nepal meets perfection requirements, maximizes enforceability, and protects lender interests throughout the credit lifecycle.

References

Disclaimer: This blog provides general information about security documentation for corporate loans in Nepal and does not constitute legal or financial advice. The Secured Transactions Bill 2023 represents significant changes subject to implementing regulations. Security laws and perfection requirements are complex and situation-specific.