Move targets 'pass category' borrowers battered by 'recent unfavorable circumstances'
KATHMANDU, Jan 14: Nepal Rastra Bank (NRB) has once again extended its deadline for borrowers of bank and financial institutions (BFIs) to repay their loan installments by three months.
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The central bank introduced the relaxation on repayment of loans amid appeals from the private sector that they were not in a condition to repay their loan installments by the end of the second quarter of the fiscal year following the April-25 earthquake, the ongoing Tarai turmoil and an unofficial economic blockade.
Most of business firms, factories and companies have remained closed due to banda imposed by agitating Madhes-based parties while others are underperforming due to the India-imposed economic blockade, according to the Federation of Nepalese Chambers of Commerce and Industry (FNCCI).
Issuing a circular to licensed BFIs on Thursday, the central bank said the BFIs can count the interest, principal or installment payment received until mid-April under 'pass category' while making loan-loss provisioning.
However, this relaxation will be only for those borrowers whose loan repayment capacity has been eroded or whose project operations have faced problems due to the 'recent unfavorable circumstances'. Though the circular does not explicitly specify what the 'recent unfavorable circumstances' means, it says that 'it issued the circular considering the recent devastating earthquake as well as subsequent unfavorable condition that has cause damages in tourism, industry and business, among other sectors'.
This facility will be limited to those borrowers listed under pass category -- a loan category that classifies borrowers who are able to honor the terms of contracts and have no reason to have their ability to repay the principal and interest of loans in full and in a timely manner-in mid-July last year doubted.
To provide relief to borrowers battered by the recent earthquake, the central bank had allowed similar flexibility of loan repayment extension by a three-month period in the eve of Fiscal Year 2014/15 for those borrowers listed in pass category in mid-April last year.
BFIs will not be allowed to charge borrowers penal interests or extra fees as per this relaxation facility, according to the NRB circular.
Allowing BFIs to book such loans under the pass category means that they will have to provision only one percent of the loans. Without the relaxation, five percent of loans had to be provisioned under 'watch' category.
The central bank has also decided to allow BFIs to reschedule and restructure loans for borrowers who in the industry, education, health, tourism and energy sectors if any borrower makes such a request with written work plan. The central bank has also said that the rescheduling or restructuring can be done for one time that extends the maturity period by up to a year if the respective institution is convinced that the borrower's loan repayment capacity was eroded by the recent turmoil.
