Margin lending on NEPSE: the math that wipes out small accounts
At 70% LTV, a 30% NEPSE drop deletes 100% of your equity. The 2021-to-2022 drawdown was 43%. Here's the actual math behind bank margin loans, broker MTF, the new SEBON 2082 directive, and why retail accounts vanish during corrections.
A relative messaged me last winter. NEPSE had been climbing for months. His broker had just rolled out the new MTF facility. The pitch: put Rs 3, get a Rs 10 position.
He wanted to know whether he should put Rs 5,00,000 down and take a Rs 11,66,667 loan to ride what looked like an obvious uptrend.
I asked him one question. "What happens if NEPSE drops 15%?"
He didn't have the answer. Most retail investors don't, until they're staring at a force-sell notification on a Tuesday morning.
This post is the math he wishes he'd run that night. Not advice about whether to use margin lending; that depends on your risk appetite, your other income, and your willingness to lose the entire equity you put in. The math, though, is fixed. It doesn't care about your confidence in the trend.
Two products, easily confused
Nepal has two distinct margin products. Conflating them is how most retail investors get their first surprise.
| Feature | Bank margin lending | Broker MTF |
|---|---|---|
| What you do | Pledge shares you already own, borrow cash | Put down 30%, broker funds 70% to buy new shares |
| Regulator | NRB (banks/FIs) | SEBON (brokers) |
| Maximum LTV / equity | 70% loan-to-value | 30% initial margin (3.33x leverage) |
| Maintenance threshold | Call after 20% pledged-value drop | 20% maintenance, 15% forced sell-out |
| Eligible securities | NEPSE-listed shares, not below face value | 123 specific companies as of April 2026 |
| Tenure | Max 1 year, renewable | Set by broker; typically rolling |
| Use of funds | Anything (commonly more shares) | Must buy specified eligible stocks |
| Live since | Long-standing | Directive 2082, effective Feb 13, 2026 |
The bank product is older and bigger by volume: about Rs 159.48 billion outstanding across BFIs as of mid-April 2026, up 13.4% in the first nine months of FY 2082/83. The broker MTF is new (SEBON's 2074 directive sat dormant until the 2082 replacement) and growing fast.
Most people use the word "margin" loosely to mean either. From a risk perspective, MTF is the more aggressive product because the initial leverage is higher (3.33x vs ~1.43x at 70% LTV) and the forced-sell threshold is tighter.
Bank margin lending: the 70% LTV math
The bank product works like this. You own NEPSE-listed shares. You walk into your bank, fill out a pledge form, and the bank values the pledged shares at the lower of the 180-day average market price OR the last traded price. Whichever is lower. You can borrow up to 70% of that valuation.
The 180-day average rule is a real Nepali quirk. During a rally, your LTP might be sky-high but the 180-day average is much lower, so you can't borrow on the rally. During a crash, the 180-day average is high but the LTP is low, so you still can't borrow on the high average. The bank always uses the worse number. That's intentional anti-cyclical design from NRB.
A worked example, on a Rs 10,00,000 portfolio of pledged shares (assume LTP and 180-day average are roughly equal at the time of pledge):
| Step | Amount |
|---|---|
| Pledged share value | Rs 10,00,000 |
| Maximum LTV at 70% | Rs 7,00,000 |
| Your equity at the start | Rs 3,00,000 |
Now NEPSE drops. Here's what happens to your equity at different drawdowns:
| NEPSE drop | Portfolio value | Loan still owed | Your equity | LTV ratio |
|---|---|---|---|---|
| 0% | Rs 10,00,000 | Rs 7,00,000 | Rs 3,00,000 | 70.0% |
| 10% | Rs 9,00,000 | Rs 7,00,000 | Rs 2,00,000 | 77.8% |
| 15% | Rs 8,50,000 | Rs 7,00,000 | Rs 1,50,000 | 82.4% |
| 20% | Rs 8,00,000 | Rs 7,00,000 | Rs 1,00,000 | 87.5% |
| 25% | Rs 7,50,000 | Rs 7,00,000 | Rs 50,000 | 93.3% |
| 30% | Rs 7,00,000 | Rs 7,00,000 | Rs 0 | 100.0% |
| 35% | Rs 6,50,000 | Rs 7,00,000 | -Rs 50,000 (you owe extra) | 107.7% |
Look at the 30% row. The portfolio is still worth Rs 7 lakh. You haven't lost everything in absolute terms. But the bank's claim is also Rs 7 lakh. When the loan is squared, your equity is zero. The unleveraged version of the same trade (no loan, just Rs 3 lakh of your money in shares) would have shrunk to Rs 2,10,000 after a 30% drop — still painful, but you'd have Rs 2,10,000. With the margin loan, you have nothing.
Push the drawdown to 35% and you're underwater. The bank has full recourse against your other assets.
When the margin call comes
NRB's Monetary Policy 2075/76 framework requires banks to issue a margin call after a 20% decline in pledged share value. The exact mechanics vary by bank, but the broad sequence:
- Pledged value drops by 20%.
- Bank issues a written margin call. Most banks try to call before automatic sell-off; a few don't, particularly during fast crashes when the operations desk is overwhelmed.
- You have a short window (typically 2 to 5 trading days) to either deposit cash to bring the loan back to the 70% threshold, or pledge additional shares.
- If you don't top up, the bank starts selling pledged shares to reduce the outstanding loan.
The compressed nature of this window matters. NEPSE settles on T+2 since Magh 11, 2077 (January 25, 2021). Even if you sell other shares on day one of the call to raise top-up cash, the cash settles on day three. By then, share prices may have moved further, the bank's forced sale may already be executing, and you're chasing your own tail through a falling market.
The broker MTF mechanic: faster, tighter, more dangerous
SEBON's Margin Trading Facility Directive 2082 came into force on Falgun 1, 2082 (February 13, 2026), replacing the never-implemented 2074 directive. The product is structurally different from bank lending.
The mechanic: you put down 30% of the purchase price, the broker funds the remaining 70%, and the broker buys eligible shares directly into your demat. The eligible-share list is 123 NEPSE-listed companies as of April 2026.
The leverage at the start: Rs 30 of your money controls Rs 100 of position. That's 3.33x.
NEPSE's Working Procedure for Margin Trading 2077 sets the maintenance margin at 20%, with forced sell-out at 15%. Translation: your equity ratio (current equity / current position value) must stay above 20%, and if it drops to 15% or below, the broker can sell without consent or notice.
The math at 3.33x leverage is brutal:
| Share price drop | Equity remaining | Equity ratio | What happens |
|---|---|---|---|
| 0% | Rs 30 | 30% | All good |
| 5% | Rs 25 | 26.3% | All good |
| 10% | Rs 20 | 22.2% | Approaching maintenance |
| 12.5% | Rs 17.5 | 20.0% | Margin call triggers |
| 14% | Rs 16 | 18.6% | Below maintenance, top up demanded |
| 15% | Rs 15 | 17.6% | Critical |
| 17.5% | Rs 12.5 | 15.2% | About to sell out |
| 20% | Rs 10 | 12.5% | Forced sell-out, no consent needed |
| 30% | Rs 0 | 0% | Equity wiped out entirely |
A 12.5% share-price drop hits maintenance. A 17.5% drop triggers forced liquidation. A 30% drop wipes out the entire equity you put in. None of this requires a catastrophic black-swan event; it's the kind of move NEPSE puts together in a normal correction.
The new ±15% daily circuit (raised from ±10% effective Apr 17, 2026) means a single trading day can deliver enough of a drop to trigger sell-out by close. And the market-wide halt at 8% index move only kicks in after the damage is mostly done.
What 2021-to-2022 actually did
The math above isn't hypothetical. NEPSE hit an all-time high of 3,198.60 on August 18, 2021, then fell to 1,807 by June 24, 2022 — a 43.5% drawdown over ten months.
At 70% LTV bank margin, the breakeven drop is 30%. The 2021-to-2022 drawdown was 43.5%. Every retail investor who entered margin lending at the peak (and there were many — the rally was driven in part by margin) saw their equity wiped out and then some.
Documented consequences from that period:
- Mass force-selling by banks as borrowers couldn't meet calls.
- Investor protests at NEPSE premises, including hunger strikes demanding the resignation of the NRB Governor, SEBON Chairman, and NEPSE Chairman.
- The eventual relaxation of single-customer margin caps (Rs 4 crore → Rs 15 crore → Rs 25 crore → abolished entirely on Asoj 22, 2082) was political response to that pressure, not a market-driven liberalisation.
The Gen-Z protests of September 8-9, 2025 closed NEPSE for five trading days. When it reopened on September 18, the index dropped 160.33 points (about 6%) in under an hour, triggering three circuit breakers. Smaller in magnitude than 2022, but enough to trigger MTF maintenance calls at any leveraged account that hadn't unwound.
These are not extreme cases. They are normal volatility for NEPSE. The market has done this multiple times. It will do it again. The leverage math doesn't care about narratives; it cares about prices.
Why retail accounts get wiped first
Three reasons margin lending eats small accounts disproportionately:
- Concentration. A retail investor with Rs 3 lakh of equity in a single bank or hydro stock pays the full leverage on every move of that one stock. A diversified institutional account spreads the risk across 20 lines.
- No top-up capacity. When the call comes, large accounts can wire in cash from a salary, a business operating account, or an FD. Retail accounts often can't. The forced sell-out is automatic when the top-up window expires.
- Lower-circuit lock-ins. When a stock hits the daily lower circuit (now ±15% from previous close), there are no buyers, only sellers. You cannot sell to top up your margin even if you want to. The broker's sell order joins the queue at the bottom, executing only when the stock unfreezes.
The Section 88 directive caps banks at 40% of core capital for total margin lending and 10% of core capital for a single listed company, which prevents systemic risk but does nothing for the individual borrower's exposure. A bank can be well within its own limits while liquidating your account.
The interest cost compounds the leverage
Even before the price math, there's a quieter drain: the interest cost.
Current bank margin loan rates land in the 7 to 13% range, depending on the base rate plus premium (currently 5.6 to 6% base + 0 to 8.5% premium). NRB rules cap the tenure at one year, renewable upon full payment of accrued interest.
A Rs 7 lakh margin loan at 11% annual interest costs Rs 77,000 a year. On a Rs 3 lakh equity stake, that's 25.7% of your equity, paid every year, regardless of whether NEPSE moves up, down, or sideways. The first 25.7% of any portfolio gain is going to interest. NEPSE has to rise at least 7-8% just to break even on the leverage cost; everything above that is your profit.
Sideways NEPSE years are the worst case for margin borrowers. The interest accrues, the portfolio doesn't gain, the equity ratio slowly deteriorates. A flat market for a year on a maxed-out margin account looks like a slow grind-out, then a single bad week tips it into a margin call.
The system-level numbers
If you want a sense of how big this game has gotten in Nepal:
| Date | Margin lending outstanding (BFIs) |
|---|---|
| Mid-July 2024 | Rs 70.34 billion |
| Mid-September 2024 | Rs 79.14 billion |
| Mid-December 2024 | Rs 86.33 billion |
| End of FY 2081/82 (mid-July 2025) | Rs 116.80 billion |
| Mid-April 2026 | Rs 159.48 billion |
The product roughly doubled in two years. Top single-bank exposures by Asoj 2082 (Sept-Oct 2025): Nabil Rs 16.57 billion, Global IME Rs 12.89 billion, Kumari Rs 11.25 billion.
This is the system-wide leverage NEPSE is carrying. When the next 20% drawdown comes (whether driven by macro, regulatory shift, or external shock), a meaningful chunk of these Rs 159 billion in loans will get into margin-call territory simultaneously. That's the cascade dynamic that turned the 2021-to-2022 correction into a 43% drawdown rather than a 25% one. Force-selling begets price drops; price drops trigger more force-selling.
What this post is not saying
A few common reads to head off:
- Not saying margin lending should be banned. It's a legitimate product with a place in some portfolios — typically those with significant equity capital, low-correlation income, and tolerance for total loss of the equity stake. That's a small population.
- Not saying you should never use it. A short-duration tactical use (covering a settlement gap, bridging a known cash inflow, taking a position with a tight stop) is different from running 70% LTV continuously for years.
- Not saying NEPSE is the problem. NEPSE is volatile because it's a small, retail-driven market with limited float. The leverage product amplifies that volatility for the individual borrower. The leverage is the problem, not NEPSE.
What the post is saying: at 70% LTV bank margin or 3.33x MTF leverage, the equity-wipeout math is 30% for bank margin, 15% for MTF. NEPSE delivers drawdowns that exceed both of these thresholds regularly. If you take the leverage, you should be sized so that 100% equity loss does not break you.
Tracking margin exposure honestly
In Kharchapatra, the conventions that keep the picture honest if you do choose to use margin:
- Track the gross portfolio and the loan separately, not the net. A Rs 10 lakh portfolio with a Rs 7 lakh margin loan is not a Rs 3 lakh position; it's a Rs 10 lakh exposure with Rs 7 lakh of liability. Logging only the net hides the leverage from your own dashboard.
- Categorise margin interest as an investment expense, not a deduction from share returns. Easier to see, year-end, what the leverage actually cost.
- Tag the date and triggering rate of each margin call. Even if you didn't get force-sold, knowing how often you came close is useful information about your risk appetite vs your risk tolerance.
What you actually need to know
Three things, in order:
- At 70% LTV bank margin, a 30% pledged-share drop wipes out your equity. At 3.33x MTF leverage, a 30% share drop wipes out the equity twice over. NEPSE has delivered 30%+ drawdowns in living memory. The math is not hypothetical.
- Margin calls move faster than your top-up capacity. T+2 settlement, ±15% daily circuit, and a 2-to-5-day top-up window mean by the time you're trying to raise cash, the position may already have been liquidated. Size your leverage assuming the worst case for top-up speed.
- Interest cost compounds the loss. A flat or down market with a maxed-out margin loan is a slow grind-down even before any margin call. NEPSE needs to rise around 8% a year just for you to break even on the loan cost.
If you're sitting on a margin position and the leverage math in this post feels uncomfortable, that's the signal to unwind before the next correction, not after. Email parjanya57@gmail.com if your specific situation warrants a math walk-through. Personal cases help future readers see the leverage from different angles.
This post is part of the Nepal Money Basics guide — the investing section.