NRB announces relief package for industries, firms hit by Tarai unrest

Nepal Rastra Bank (NRB) has announced loan restructuring and rescheduling to industries and businesses hit by the recent Tarai unrest and undeclared economic blockade imposed by India. The central bank has come up with some relaxation provisions to the industries and business firms for repaying their bank loans, responding to requests from the private sector. It has also introduced relaxed loan loss provisioning for BFIs on loans of borrowers whose repayment capacity has been eroded by the recent turmoil. Issuing a circular to licensed BFIs on Tuesday, the central bank said that it brought the relaxations considering the 'difficult circumstances' which has squeezed the economic activities and affected industries, trade, tourism and energy, among other sectors. According to the circular, BFIs can provision the loss of the loans of the affected borrowers who repay the interest, principal or installment by mid-January 2016 (second quarter of the current fiscal year) as a loan under 'pass category', delaying repayment of installment by a quarter. BFIs are now allowed to set aside only one percent of the total loans as loan loss provisioning as per the requirement under the 'pass category' even for such delayed repayment. Pass category refers to good loans of the BFIs that are serviced regularly. Similarly, NRB has also relaxed the provisions for affected borrowers under 'watch list' category while making loan loss provisioning. Unlike the requirement for increasing the provisioning by 0.5 percentage points in every quarter for loans under 'watch list', BFIs can now set aside only 2 percent of the loan loss provisioning in every quarter under this category until the fourth quarter of the current fiscal year. BFIs will be required to provision four percent loss of the total loans in the fourth quarter or, mid-July 2016. While loans under 'watch list', which was introduced recently, are similar to the loans under 'pass category', central bank requires BFIs to classify the loans like those whose installment payment have been missed by the borrower and has become due for more than a month, and loans floated to the firms that have negative net worth or are in loss for two consecutive years under this category. Likewise, the central bank has said that BFIs can restructure or reschedule loans of factories, businesses, education, health and other sectors affected by the turmoil for one time, extending loan repayment period by a year. Borrowers, however, are required to submit their rescheduling and restructuring plans to BFIs. BFIs can extend the repayment period if they are convinced that the borrowers are affected by the turmoil. Such rescheduling or restructuring should be completed by mid-January 2015, according to the circular. Earlier in June also, NRB had extended similar loan repayment relaxations to BFIs and private sector hit by the devastating earthquake.