MYAGDI, Sept 15: Banking industry in Myagdi is confronting the problem of multiple banking, thanks to unhealthy competition among bank and financial institutions (BFIs).
BFIs in the district are extending loans to the borrowers, who have earlier defaulted on loans of another BFI, showing lack of compliance to the Nepal Rastra Bank (NRB) rules on lending to a firm or company by one or more institutions.
Multiple banking refers to the lending practice whereby more than one banking institution float loans to a firm or company. According to the central bank rules, a bank has to get permit from another bank if the former is floating loans of up to Rs 10 million to a borrower who has got loans from another lender. If the loan amount is higher than Rs 10 million, the two banks should sign a pari passu agreement.
However, Myagdi BFIs are taking risk by not complying with the NRB rules to lure 'big clients' toward them amid high competition. The problem is more acute in development banks based in district headquarters Beni.
An official at a bank in the district say banks choose to address the problem secretly as they fear publishing the name of defaulters will further heighten the risk.
BFIs aren't much interested use loan loss provision to cover expected loss due to loan defaults. Without classifying loans under categories like Pass Loans, Watch List Loans, Sub-standard, Doubtful and Loss, BFIs in Myagdi have been investing by assessing the borrowers based on their business size and 'prestige'. NRB requires loan loss provisioning ranging from 1 percent to 100 percent of the loans based on the classification.
"This problem is largely due to competition on investment. We also request BFIs for coordination so that the loan investments are safe and secured," Surya Prasad Baral, chairperson of Bankers Club Myagdi, said. He said that there has not been any problem for BFIs who have duly complied with the NRB regulations.
Many BFIs are not affiliated with the club, hampering the efforts of the club to forge coordination and collaboration for healthy banking practices, he said. “If the problem is not taken seriously, the BFIs will land into trouble,” he warned.
Sources say that as the old records of citizenship certificates were burnt during Maoist insurgency, borrowers are getting loans from the new citizenship certificate with some changes which may not match with the record of the Credit Information Bureau.
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