Nepal Rastra Bank spokesperson Guru Prasad Poudel says: 'Banks have also provided facilities such as advance payment guarantees. In that case, if the contract is broken, the banks' liabilities increase and additional expenses increase.'
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Nepal Rastra Bank Executive Director and Spokesperson Guru Prasad Poudel said that the banking sector will be affected if a large number of sick contracts are terminated. He said this at a dialogue program with stakeholders on ‘Sick Contract Management’ organized by the Nepal Infrastructure Journalists Society in collaboration with the Federation of Nepal Construction Entrepreneurs in Kathmandu on Tuesday.
Poudel says that the banking sector will be affected in many ways. 'After the contract is broken, the companies concerned will be put on the watch list. In that case, the companies concerned may be deprived of credit,' he said. 'The loans that have flowed so far will fall into the substandard category. In that case, banks will have to increase provisions. In that case, the banks' expenses will increase.'
Banks have also provided facilities such as advance payment guarantees. In that case, he said, the liabilities of the banks will increase and additional expenses will increase. As a result, he said, the construction company will have to be compulsorily blacklisted. He said that after being blacklisted, there will be further contraction in credit flow. He said that all partner companies in joint venture (JV) contracts should also be responsible. He said that the facility of loan rescheduling and restructuring is provided only in cases of need. He said that it is necessary to make the JV contract systematic. He said that it is necessary to manage it as there is no legal structure for JVs. He said that if they are not responsible, more problems may arise. He said that after taking the contract in the JV, the work should also be done jointly. He said that discussions are underway to review the arrangements related to maintaining the black list. However, he said that it is equally challenging to remove it from the black list.
