NRB seeks details of big realty sector loans
KATHAMNDU, JAN 21 -
Amid concerns that realty sector loans may pose a threat to the financial system, Nepal Rastra Bank (NRB) has sought details of big loans that went to the sector from banks and financial institutions (BFIs).
The central bank recently asked BFIs to report on the actual status of the realty loans worth more than Rs 10 million.
An NRB source said the BFIs will have to report on whether the big borrowers have been repaying the loans and on how much outstanding amount remain. “They will have to report on whether realty sector borrowers are paying both interest and principle and how much dues they have to recover,” the source said. He said that the move was taken to find out the exact status of the loans so that appropriate measures could be taken to tackle the supposed crisis in the financial sector.
The central bank has been adopting a flexible approach in settling problems in the realty sector loans by giving BFIs time to reduce their loan exposure to the sector to 25 percent by the end of next fiscal. Earlier, the BFIs were asked to reduce the exposure by the end this fiscal year.
The central bank has already expanded the limit of home loans that are categorised as realty loans to Rs 10 million from the earlier Rs 8 million. However, BFIs have been complaining about problems in recovering the loans. Not only the realty sector, the central bank is also planning to look into the actual status of different other loans. For this, central bank officials are discussing about seeking the actual status of the different types of loans such as real estate, margin type, hire purchase, overdraft, working capital and trade finance, among others.
“We are discussing a provision to find out to what degree loans given under different categories are sound,” said the NRB source. “They (BFIs) will have to report on how much a particular loan is good, substandard, doubtful and bad.”
Not only on the category, but the NRB is also planning to find out the status of the loans on the basis of the objectives.”
According to the source, the measure was being planned due to the discrepancy in the reporting of the BFIs that non-performing loans of most of the banks are below 3 percent, while they are complaining about non-recovery. “We want to reach to the core of the problem so that their ills could be cured,” said the NRB official.
Meanwhile, Nepal Rastra Bank is also discussing on whether to fix a limit on all personal overdraft loans, given the rampant use of such loans that may not be productive. Although the central bank has provisioned that a personal overdraft of above Rs 5 million will be categorised as realty loans, there is no cap on the loans below that level.
A senior NRB official said they are receiving information about BFIs issuing overdraft loans to realty traders so that they can use that amount to pay the interest. The loan amount, thus, goes up and loans remain evergreen. “With the second quarter of the fiscal year ending, we are getting reports that the frequency of overdraft loans has gone up,” the central bank official said.
Source: Kantipur
