Central bank attempts to keep tabs on short-term borrowers
KATHMANDU, AUG 12:
Financial institutions have to maintain a hawk-eye scrutiny on short-term borrowers of working capital type loans from now on to manage multiple banking transactions.
Issuing a circular today, Nepal Rastra Bank (NRB) has asked financial institutions — class ‘A’, ‘B’ and ‘C’ — to keep detailed information on borrowers of different short-term working capital type loans regarding their exposure to similar debts at other financial institutions.
Financial institutions have been asked to be more vigilant on loans higher than Rs 10 million being floated as overdraft loan, working capital loan, cash credit loan, demand loan, trust receipt loan, short-term loan and hypothecation loan.
For borrowers who have obtained loans from multiple financial institutions, from now on, those lending financial institutions need to draw an agreement with each other. The lending financial institutions need to decide beforehand on loan recovery and collateral auction in case of default by the borrower.
The working capital type loan is borrowed to meet short-term operating needs such as clearing payments, paying wages and to pay for imports among others.
“A single borrower obtains these types of loans from multiple financial institutions, but in case of default many financial institutions might land in trouble. This directive makes sure that financial institutions will be fully aware about outstanding debt of the borrower as well as the risk involved,” pointed out spokesperson for NRB Bhaskar Mani Gyanwali. In the monetary policy, NRB has announced that it will make multiple banking transactions more prudent.
All the borrowers under the heading need to fill up a self declaration form and financial institutions need to get information about the borrower from the Credit Information Bureau, when borrowers take new loans or reschedule older ones. Likewise, in case of loans below Rs 10 million, the borrower has to supply ‘No Objection Letter’ from other financial institutions too.
NRB has also made insurance of the capital stock against which the borrowers obtain working capital type loans mandatory. Likewise, it has also brought a series of directives in line with the monetary policy regarding deprived sector lending.
NRB seeks capital plan
Banks and financial institutions that have yet to fulfil the regulatory paid up capital requirement will have to submit their capital plan by the end of the first quarter of the current fiscal year. By the end of the current fiscal year, commercial banks have to increase their paid up capital to Rs two billion, national level development banks to Rs 640 million, and national level finance companies have to increase their paid up capital to Rs 200 million. Earlier, Nepal Rastra Bank (NRB) allowed banks to increase the capital in such a manner that 80 per cent of the said capital shall be the paid up capital and remaining 20 per cent may be covered by any source that may be calculated as the core capital. “Now financial institutions have to increase the paid up capital to Rs two billion without including the amount in reserve and in retained earnings,” said spokesperson for NRB Bhaskar Mani Gyanwali. Eight banks have yet to increase their paid up capital.
Source: THT
