Central bank caps overdraft lending
KATHMANDU, JULY 15:
The central bank has put a cap on overdraft loans and revolving personal loans to prevent haphazard lending under the heading.
Nepal Rastra Bank (NRB)’s Unified Directives for fiscal year 2012-13 has limited the lending capacity of financial institutions (FI) under the heading of overdraft loans and revolving personal loans to Rs 10 million to a single borrower.
“In recent times, banks have been issuing large amounts of overdrafts and personal loans which are being lent for unproductive purposes,” pointed out spokesperson of NRB Bhaskar Mani Gyanwali.
Likewise, to minimise the risk taking behaviour of directors, CEOs and top
management officials of financial institutions, the central bank has forbidden financial institutions to forward loans besides personal loans, education loans, home loans and hire-purchase loans, to directors, CEOs and top management of other financial institutions.
Moreover, to control the exposure of the financial institutions to real estate purchase, the central bank has even spelt out conditions for the financial institutions to purchase land or building only for their own use.
Last year, FIs ran into trouble due to large scale real estate purchases –– Vibor Bikas Bank and Gurkha Development Bank both had large scale real estate purchases that got the concerned FIs into trouble.
Even if a financial institution wants to acquire land or a building for setting up its office, it has to be earning profits for the last two years and should have already issued shares to the public.
Likewise, in addition to the public issue of shares, it needs to complete an annual general meeting and must have received approval for the purchase. In case, a financial institution fails to utilise the property for its own use in three consecutive years then it has to sell it.
Nepal Rastra Bank has tightened supervision of class ‘D’ microfinance institutions as well. It has asked the microfinance banks –– both wholesale lending and retail –– to submit a consolidated report of transactions of each branch every quarter.
Source: THT
