NRB sets new rules on CEO appointment, provisioning for loans

ShareSansar, March 16:

Banks and finance institutions (BFIs) will not be allowed to keep the post of Chief Executive Officer (CEO) vacant for more than three months. Nepal Rastra Bank introduced the provision issuing a circular.

The circular was apparently issues amid a rising trend among BFIs not to appoint a new CEO after existing ones retire and run their companies through deputies. Likewise, the BFIs are required to fill all management positions within three months of their remaining vacant.

NRB has also directed the BFIs to divide loans into five categories and introduced strict provisioning based on the categorization.  

From now onwards loans must be categorized as good, close watch, weak, suspicious and bad.   

As per the new rules, loans that have not missed the deadline for interests or are within three months past the deadline must be categorized as good loans. Similarly, loans that are three months past the deadline must be listed under close watch; loans that are three to six months past the deadline must be listed as weak loans; loans that are past the deadline by a year must be listed as suspicious loans; and the ones that have crossed the deadline by more than a year as bad loans.

The NRB has also set new rules for provisioning on loans based on the new categorization.

In case of good loans, the provisioning must be 1 percent, for close watch 5 percent, for weak 25 percent, for suspicious 50 percent and for bad loans 100 percent.