NRB defers 5% loan provisioning till Poush 2073; likely to have positive impact on market

ShareSansar, April 2:

Nepal Rastra Bank has revised the provision on “watch list” that had sent banking and finance institutions in panic mode.

Last month, the NRB had added “watch list” as a new category to loan classification requiring commercial banks and finance institutions to immediately provision 5% of the loan amount for risk management.

Issuing a circular on Wednesday, the NRB has said that the rule would now be fully implemented only after Poush 2073. The bank has said that the percentage of provisioning would be gradually increased to 5% over a period of nine months ending in Poush 2073.   

For now, banks would be required to set aside only 1.5% provisioning for loans that fall under watch list from Chait end. The NRB has also relaxed the criteria that required the loans to be categorized under watch list.  

Former governor Yubaraj Khatiwada had introduced the provisioning rule requiring banks to set aside 5% provisioning even in case of good loans. Under this rule, banking institutions had to set aside five per cent of the total loan amount even if borrowers missed the loan repayment deadline by a day.

In its revised directive, Nepal Rastra Bank (NRB), the banking sector regulator, has said banking institutions need not set aside more than 1.5 per cent of the credit amount to cover loans classified as ‘watch list.’