"In case, financial institutions have channeled credit to projects outside their working area, they should recover such loan amount within mid-July 2014. If not, 100 percent loan loss provision has to be made on such loans," a Rastra Bank directive says.[break]
Earlier, the banking sector regulator was allowing regional financial institutions to finance projects outside their working territory as long as the fixed asset pawned as collateral by the borrower remained inside their working area. But the latest directive means both projects that are being financed and the fixed asset pledged as collateral must remain inside the working area of regional financial institutions.
"However, this condition will not apply on hire purchase loans," the directive says. Most of the banks finance automobiles under the hire purchase loan. "Since it is impossible to restrict movement of, say, bus or car, we decided to keep hire purchase loans out of the latest directive´s ambit," a high-ranking Rastra Bank official said.
Meanwhile, the directive also states banks from now on need not obtain written approval of the central bank to include subordinated debt instruments, like debentures and bonds, in supplementary, or Tier 2, capital.
New payment rules
The central bank has allowed commercial banks to settle advance payment in excess of US$30,000 on behalf of importers of merchandise goods without taking consent of Nepal Rastra Bank. "But in such cases, commercial banks operating in the country must get a guarantee from foreign banks," a directive issued by Foreign Exchange Department of the Rastra Bank says.
Earlier, commercial banks were allowed to assume such responsibility only for transaction of up to $30,000. "We hope the latest provision will expedite the process of releasing advance payment to foreign parties,"another high-ranking Rastra Bank official said.
The central bank has also raised the ceiling on one-time advance payment for imports of services to $10,000 from $6,000 in the past.
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