KATHMANDU, Jan 22: 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.
The records with the DRT show that the BFIs filed 386 cases against their borrowers in the first six months of the current fiscal year. 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.
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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.
Santosh Koirala, president of the Nepal Bankers’ Association, said they had to seek the support of the DRT after they could not recover their loans due to a number of problems. “At a time when the ratio of the bad debts has been surging, we are facing hurdles from the local levels to take recommendation for transfer of ownership along with non-cooperation from the individuals concerned,” said Koirala, speaking at a program on Tuesday.
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.
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, say bankers.
Based on the period of the overdue of the loans issued by the banks, they categorize borrowings as sub-standard, doubtful and bad loans. The substandard loans are those loans whose interest and principal payments are due up to six months. The doubtful loans are those in which payments remain due for six months to one year, while the overdue period is more than one year in case of bad loans.
Recently, the BFIs have been witnessing 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.
