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.
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:
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.
In a significant reform, the Secured Transactions Bill, 2023 received presidential assent in 2025, introducing:
| New Provision | Impact |
|---|---|
| IP-backed lending | Patents, trademarks, copyrights eligible as collateral |
| Comprehensive movable collateral | Machinery, mineral rights, livestock, agricultural crops, processed food products |
| Central registry establishment | New registrar's office for movable asset transactions |
| Notice filing system | Publicity 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.
| Collateral Type | Perfection Mechanism | Governing Law |
|---|---|---|
| Land and buildings | Registration at Land Revenue Office | National Civil Code 2074, Lands Act 2021 |
| Leasehold rights | Lease agreement registration + mortgage deed | Civil Code, Contract Act |
| Under-construction properties | Hypothecation + completion guarantees | BAFIA 2073, NRB directives |
Mortgage Registration Process:
| Collateral Category | Examples | Perfection Status |
|---|---|---|
| Machinery and equipment | Manufacturing equipment, vehicles | STRO registration (when operational) |
| Inventory and stock | Raw materials, finished goods | Possession-based or STRO filing |
| Receivables | Trade debts, book debts | Assignment + notice to debtors |
| Bank deposits | Fixed deposits, savings accounts | Pledge + bank acknowledgment |
| Investment securities | Shares, bonds, debentures | Demat account pledge + NEPSE notification |
| Intellectual property | Patents, trademarks, copyrights | New: IP Office registration + STRO filing |
Cash Collateral:
Personal Guarantees:
Essential Steps:
| Step | Activity | Authority | Timeline |
|---|---|---|---|
| 1 | Title verification and due diligence | Land Revenue Office | 3-7 days |
| 2 | Valuation by certified valuer | Nepal Valuers' Association member | 5-10 days |
| 3 | Mortgage deed execution | Before notary public | Same day |
| 4 | Registration at Land Revenue Office | Land Revenue Office | 1-3 days |
| 5 | Encumbrance certificate update | Land Revenue Office | Immediate |
Key Requirements:
Current Framework (Pre-STRO Operationalization):
| Collateral Type | Perfection Method | Enforceability Risk |
|---|---|---|
| Machinery | Hypothecation deed + possession | High - no public registry |
| Inventory | Floating charge + stock statements | Very high - difficult to verify |
| Receivables | Assignment deed + debtor notice | Moderate - dependent on debtor cooperation |
| Shares | Pledge agreement + demat transfer | Low - NEPSE registry provides transparency |
| Bank deposits | Pledge + lien marking | Very low - bank's own records |
Post-STRO Operationalization (Expected):
Under Companies Act, 2063, certain security interests require OCR registration:
| Charge Type | Registration Requirement | Consequence of Non-Registration |
|---|---|---|
| Mortgage of immovable property | Mandatory within 30 days | Charge void against liquidator/creditors |
| Hypothecation of movable property | Mandatory for company assets | Unenforceable in winding-up |
| Pledge of shares | Mandatory if company is pledgor | Priority issues in enforcement |
| Floating charge | Mandatory for current assets | Invalid against subsequent creditors |
OCR Registration Process:
| Document | Purpose | Execution Requirements |
|---|---|---|
| Loan Agreement | Primary credit facility terms | Board resolution, authorized signatories |
| Mortgage Deed | Immovable property security | Notarized, registered at Land Revenue Office |
| Hypothecation Agreement | Movable asset security | Board resolution, asset schedule attached |
| Promissory Note | Evidence of debt | Stamped, executed by borrower |
| Letter of Continuity | Continuing security for revolving facilities | Cross-referenced to primary documents |
| Guarantee Deeds | Third-party liability support | Guarantor board resolution, notarized |
| Security Trustee Agreement | For syndicated/consortium loans | Inter-creditor arrangement documentation |
| Document | Purpose | Special Features |
|---|---|---|
| Hypothecation of Stocks | Inventory financing | Floating charge, periodic stock statements |
| Book Debt Assignment | Receivables financing | Notice to major debtors, collection account control |
| Cash Credit Agreement | Overdraft facility | Drawing power calculations, margin maintenance |
| Letter of Credit Facilities | Trade finance | Cash margin, shipping document control |
| Document | Purpose | Project-Specific Elements |
|---|---|---|
| Project Assets Mortgage | Immovable project property | Step-in rights, completion guarantees |
| Assignment of Project Agreements | Off-take contracts, EPC contracts | Direct agreements with counterparties |
| Escrow Account Agreement | Cash flow control | Waterfall payment priorities |
| Completion Guarantee | Construction risk mitigation | Parent company or sponsor guarantee |
| Performance Bonds | Contractor performance security | Bank/insurance company instruments |
| Collateral Type | Maximum LTV | Additional Requirements |
|---|---|---|
| Residential real estate | 70-80% | Valuation by approved valuer |
| Commercial real estate | 60-70% | Title insurance recommended |
| Industrial machinery | 50-60% | Insurance coverage mandatory |
| Inventory (finished goods) | 40-50% | Regular stock audits |
| Raw materials | 30-40% | Quality and marketability assessment |
| Receivables | 60-70% | Creditworthiness of major debtors |
| Bank deposits | 90-95% | Same bank or approved correspondent |
| Listed securities | 50-70% | Margin maintenance, price monitoring |
For foreign loans approved by NRB:
| Enforcement Route | Process | Timeline |
|---|---|---|
| Judicial foreclosure | Court application under Civil Code Chapter 12 | 2-5 years |
| Power of sale | If mortgage deed includes power of sale clause | 6-12 months |
| Private treaty | Negotiated sale with mortgagor cooperation | 3-6 months |
| Auction | Public auction under court supervision | 1-2 years |
Civil Code Provisions:
Self-Help Remedies (Post-STRO):
Current Practice (Pre-STRO):
For international syndicated loans:
| Structure | Application | Documentation |
|---|---|---|
| Local security | Assets located in Nepal | Nepalese law documentation, local registration |
| Offshore security | Assets held abroad | Foreign law documentation, foreign registration |
| Share pledge | Foreign holding company shares | Law of share location, NRB notification |
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).
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).
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.
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.
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.
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.
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.
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.
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.
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.
Attorney Nepal Pvt. Ltd. provides comprehensive security documentation services for corporate loans in Nepal, including:
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.
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.
March 03, 2026 - BY Admin