KATHMANDU, Dec 28: Nepal Rastra Bank (NRB) has sought to curb the working capital loan citing mainly the loans on import amid worsening liquidity position in the banking system and ballooning imports.
The central bank in this regard has prepared a draft on Working Capital Loans Related Guideline 2021 and floated it for suggestions from stakeholders on Sunday. The guideline is also expected to track use of the working capital loans being issued by the banks.
A working capital loan is a loan that is taken to finance day to day operation of a company. These loans are not issued to buy long-term assets or investments. In this category, Nepali banks issue cash credit, short-term loans, import-export related loans and term loans.
In the proposed provision, banks can issue this type of loan for only up to one year if the loan amount is a maximum of Rs 10 million. Banks are allowed to provide only up to 20 percent of the annual transaction amounts in working capital loans within this prescribed limit.
In case of loans of more than Rs 10 million, banks have to assess the permanent working capital need and fluctuating working capital need of the firms concerned. The tenure of loans on fluctuating working capital has been proposed to be one year or less while for the permanent working capital need, the tenure will be the term loan of at least five years’ period.
Similarly, firms seeking loans worth more than Rs 10 million will have to present audit reports of at least the past three years along with the projected financial details of the next five years. Banks will have to assess the details of financial liabilities of the borrowing firms while renewing the working capital loans.