Bankers fear loan misuse ruling could shake confidence in lending
Summary
A Supreme Court ruling saying loan misuse can trigger criminal proceedings has alarmed Nepal’s banking sector, with bankers warning it could discourage lending and create legal risks for borrowers. The court said regular repayment does not shield borrowers if funds were used for purposes other than those approved.
Key Points
- The Supreme Court said using loan funds for a purpose other than the one approved can amount to a banking offence under existing law, even if the borrower is repaying on time.
- Bankers warned the ruling could chill lending and create legal risks for long-standing loans that were diverted from their original purpose.
- The verdict came from a joint bench of justices Tek Prasad Dhungana and Meghraj Pokhrel in a habeas corpus case involving Shashidhar Sharma and Prabhu Bank.
- The court upheld the investigation initiated after Nepal Rastra Bank forwarded its inspection findings to police, but it did not definitively rule that Sharma had misused the loan.
