At a meeting with NRB Governor Yuba Raj Khatiwada on Wednesday, a delegation of the Federation of Contractors´ Associations of Nepal (FCAN) demanded that the central bank withdraw the provision as it would make credit expensive and severely affect large construction projects across the country.[break]
Contractors have claimed that half of the loans secured by construction companies are backed by assets pawned by person or firms other than the borrower.
Issuing a press statement on Wednesday, the apex organization of Nepali contractors stated that the provision has made it difficult for contractors, who cannot arrange collateral on their own, to obtain loans from banks and financial institutions.
The central bank has defined third party collateral as security provided by person or firms other than the lender (bank) and borrowers and their close family members.
The delegation members also voiced dissatisfaction over the continued rise in bank interest rate and the practice of undervaluing collateral that are pawned to obtain loans, while urging the central bank to take measures to simplify the lending process for the construction sector.
They also demanded that the central bank make provision that allows construction equipment to be pledged as collateral, although bankers said such practice is already in place.
On the occasion, Governor Khatiwada assured that the NRB would study the problems faced by contractors and take steps to address the problems.
So far, a total of Rs 60 billion worth of loans has been issued to the construction sector involved in development of physical infrastructures and commercial complexes, among others.
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