Banks and financial institutions (BFIs) in Nepal have started seeking support of the Debt Recovery Tribunal (DRT) after failing to recover large amounts of their bad loans. According to DRT, the BFIs filed 386 cases against their borrowers in the first six months of the current fiscal year (mid-July to mid-January). Of them, 331 were related to commercial banks, 40 were related to development banks and 15 were filed by finance companies. Most of the cases were related to non-recovery from construction companies. Grocery shops, jewelries, furniture, gas depots, hospitals, agricultural firms and resorts and banquets were among others. The financial institutions have sought to recover more than Rs 5.12 billion from their borrowers. Of the amount, commercial banks alone claimed over Rs 4.84 billion. According to Nepal Bankers’ Association, the ratio of the bad debts has been rising – meaning many more BFIs will be knocking on the doors of DRT seeking the latter's facilitation to recover their bad debts worth tens of billions. The DRT is a judicial body formed essentially to facilitate the recovery of bad debts of the BFIs that they failed to recover through their own efforts. Recovery of bad loans is crucial to ensure that the financial health of a financial institution is robust. Why the companies and individuals in question are not repaying the loans perhaps also needs to be looked into seriously.
As per the law, the BFIs need to file cases against the loan defaulters within four years from the date that the loans are converted into bad debts. However, with the growing incidents of bad debts, the BFIs have started filing cases at the DRT even if the loans fall into substandard categories. The substandard loans are those loans whose interest and principal payments are due up to six months. Is it that the BFIs lack patience, or choose the easy path? While the borrowers must repay the loans that they have obtained, BFIs are expected to respect the fact they categorize the overdue loans as substandard, doubtful and bad loans based on the period of nonpayment. It certainly is not very fair on the borrowers when the BFIs take the matter up with DRT just as the borrowers fail to repay for six months or so. They should be given more time because the BFIs are well aware of the economic slowdown effectively since the COVID-19. Every sector of the economy has suffered. The Central Bank has been mopping up billions and billions of rupees from the BFIs. The government's revenues collections have only marginally increased and the state has not been able to release payments for the contractors. Many have gone bankrupt and, according to a news story that this daily carried, a couple of months some have even "exported" their heavy machinery, including the bulldozers, to Afghanistan.
Lending slows as banks focus on recovery of loans at fiscal yea...
Yes, it's a sad fact that the BFIs have witnessed increasing non-performing loans (NPLs) due to growing incidents of their non-recovery. According to the financial reports unveiled by the commercial banks, their NPLs soared to 4.33 percent on an average, up from 3.66 percent from last FY end. The NPL of a single entity has soared as high as 6.96 percent. Likewise, the ratio of NPLs of development banks has reached 5.36 percent on an average while that of finance companies stands at 8.13 percent. These are the problems; even worse, there are no solutions in sight. Recovering the loans by all means must never be the sole motto of the BFIs and the DRT or any other state party, for that matter. The state, the BFIs may be advised to work in tandem to come up with workable plans that benefit the stakeholders. A total focus on recovering the loans under all circumstances is no solution. While the bank loans must be paid back, we also need to ensure that the enterprises and businesses survive.
