Contractors ask NRB to revise directive

KATHMANDU, AUG 02 -

Nepali contractors have demanded the Nepal Rastra Bank revise its recent directive that requires banks and financial institutions (BFIs) to make additional provisioning of 20 percent for loans against third-party guarantee.

The provision of the unified directive states licensed institutions should make provisioning of the loans issued against the third-party collateral depending upon the quality of the loan—good, inferior or suspicious—and make additional provisioning of 20 percent.

The Federation of Contractors Association of Nepal (Fcan) argued that the provision would affect the big construction projects. “Fixed assets owned by directors of companies or firms, their partner, proprietor or their family members will not be enough without the third-party guarantee for getting loans for the big projects. This will deprive Nepali contractors of big projects and foreign contractors will get encouragement,” the Fcan said in a statement, asking the NRB to revise the provision exempting the contractors from the perview of

that directive.

 “If the government continues with the new provision, it will leave negative impact in infrastructure development works,” said Fcan President Jayaram Lamichhane. He argued that it would not be possible to carry out big projects without third-party collateral as such a huge percentage of provisioning would create shortage of fund and allow only international contractors to bid for big projects.

Those concerns were echoed during the recent executive meeting of the Nepal Bankers’ Association (NBA), with bankers fearing that the provision could deprive the banks from lucrative projects, thus affecting their profits. To discuss the issues related with new directives and problems faced by contractors in bank financing, an Fcan delegation led by its President Lamichhane on Wednesday met with NRB Governor Yuba Raj Khatiwada and NBA representatives separately.

During the meetings, contractors had put their problems regarding the higher interest rate, loan disbursement to non-contractors for purchase of buying construction equipment, low evaluation of collateral put up by the contractors. They also demanded that the construction equipment bought by the contractors should be taken as collateral. According to the Fcan, Governor Khatiwada assured the contractors of finding a solution after a study. It also said that during their meeting with NBA, the bankers assured the contractors that they would take up the issue during talks with the NRB.

Source: The Kathmandu Post