Kathmandu, Nov. 1 -- A Supreme Court ruling that borrowers can face criminal proceedings for using loans for purposes other than those for which they were approved has unsettled Nepal's banking sector, with bankers warning that it could expose borrowers to legal risks even when they are repaying their loans on time.

The ruling says that diverting loan funds from their stated purpose can constitute a banking offence under existing law, regardless of whether the borrower has regularly paid the principal, interest and instalments.

The court, however, made clear that a borrower does not automatically become guilty merely because a loan appears to have been used for another purpose. The allegations must be investigated on the basis of eviden...