There was a provision that after paying all the dues including principal and interest, the bank would be converted to the watch list category for 6 months and only after that would it be upgraded to the good category. The Rastra Bank has issued a directive and made a new provision.
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Loans in the non-performing category in banks and financial institutions can be upgraded to the good category directly after three months of paying all dues (principal and interest). Earlier, there was a provision that after paying all dues including principal and interest, they would be converted to the watch list category for six months and only then would they be upgraded to the good category. The Rastra Bank has issued a directive and made the new provision.
‘In the case where the entire outstanding amount (principal and interest) of the loans classified in the non-performing category (excluding restructuring and rescheduling) has been paid and the loan has been regularized for 3 months, the loan loss provision should be established accordingly, such that it is classified in the same category (poor, doubtful and bad) in which it has been classified and upgraded only after that period,’ the circular states.
Currently, there was a provision that a loan classified in the non-performing category could be classified in the micro-monitoring category for 6 months in the case where it has been regularized and then classified in the good category only after that period. By amending this provision, the Rastra Bank has made an arrangement to convert the loan into a good category loan directly after three months of regularization.
When the loan remained in the micro-monitoring category after regularization, banks and financial institutions had to make a loss provision of only 5 percent for the amount equivalent to the bad loan. Now, the loan can be upgraded to a good category within three months of regularization.
Before paying the principal and interest for three months, the loan should be kept in the same category in which it was and the losses should be managed accordingly. Bankers say that such a system will affect the profits of banks and financial institutions.
‘Since the loan had to be kept in the same category in which it was for three months before that, the profits may be generally affected during that period. However, since that period is only three months, it will not have a big impact on the profits,’ said Santosh Koirala, President of the Nepal Bankers Association, ‘Earlier, it had to be kept under close supervision for six months, in which only 5 percent provision was sufficient. Now, since it has to be kept in the category in which it is, the loss system should be maintained for three months.’ However, Koirala says that since it is only one quarter (three months), it will not have that much impact on the profits.
In August 2081, the Rastra Bank implemented a system to count bad loans in the good category only after six months when bad loans had been regularized. The Rastra Bank had amended the arrangement through the monetary policy of the current fiscal year and made a provision that after regularization, the loan would be classified in the close monitoring category for 6 months and then classified in the good category only after that period. Now, the same arrangement has been amended and made as before. However, in the old situation, there was a provision for upgrading to the good category only after 6 months. Now, it has been reduced to three months.
The arrangement that the loan should be kept under close monitoring for 6 months after regularization was not satisfactory to the donor agencies including the International Monetary Fund. This is why the Rastra Bank made the current arrangement at the request of the fund, according to the source.
Microfinance institutions will be able to use the amount in the Customer Protection Fund to help the families of customers who have suffered natural disasters/accidents. ‘The amount deposited in the Customer Protection Fund can be used to carry out activities that benefit the collective interests of customer members, to protect and restore the businesses of borrowers in trouble, and to support the families of customers affected by natural disasters/accidents,’ the circular states. ‘The said amount should be spent only for the education and capacity development of customers and for school-level education, health and nutrition programs of customers’ children.’
A minimum of 50 percent of the amount deposited in the Customer Protection Fund from the profits of the previous fiscal year should be spent in the next fiscal year. The amount spent in this way and the details related to it should be clearly disclosed in the annual report of the institution. There is a provision that the unspent amount should be ‘earmarked’ and invested separately and the income received from such investment should be deposited in the same fund. Along with this, the Rastra Bank has also issued separate integrated instructions to financial institutions of A, B and C categories, microfinance financial institutions and infrastructure development banks on Friday.
