NRB to ease refinancing provision

KATHMANDU, JUN 17 -

The Nepal Rastra Bank (NRB) is all set to ease the refinancing provision for banks and financial institutions (BFIs) by virtually removing all the pre-conditions.

There has been a negligible lending under the refinancing provision despite the central bank ensuring such a facility for almost all productive sectors, disadvantageous groups, including women and backward communities, and foreign employment and exports.

The central bank, under this facility, provides credit to BFIS at a very low interest rate and the latter have to lend the amount to the aforementioned sectors at NRB-fixed rate. “With BFIs complaining about paperwork hassles and complicated conditions for such lending, we are going to remove almost all conditions so as to enable deserving sectors to get credit under this facility,” said a senior NRB official.

Among the refinancing conditions were BFIs concerned should have adequate capital adequacy ratio, non-performing loans (NPL) below 5 percent and credit-to-deposit ratio below 80 percent. “The upcoming directive on refinancing will have none of these conditions,” said the official.

However, NRB spokesperson Bhaskarmani Gnawali said the central bank would discourage BFIs not maintaining satisfactory capital adequacy ratio from exercising this facility.

In the new provision, the central bank will be mum over the existing provision that offers BFIs just 80 percent refinancing of good loans put up as collateral. “This means, we are ready to provide 100 percent refinancing against good loans,” said the NRB official. The central bank will continue the provision that offers refinancing of up to 60 percent of the core capital of BFIs concerned.

Another important change in the upcoming directive is that BFIs can lend the refinanced amount only to their borrowers whose good loans have been put up as collateral. Earlier, banks could lend such amount to any of their loanees having investment in the productive sector. “This provision ends the possibility of good borrowers not getting loans at cheaper rates under the refinancing facility,” said the NRB official.

The new directive has not changed the list of sectors that are eligible to get the refinancing facility. Sectors that are eligible to the facility are exports, pharmaceutical industry, tourism, manufacturing industries, small and medium level industries, agriculture, cement, iron industry as well as hydropower development, electricity transmission line and cable car.

And, the sectors that are not eligible are personal loans, real estate, housing and commercial complex, hire purchase financing, margin type lending (loans against share) and for tobacco and alcohol industry.

As per the existing provision, the normal refinancing will be available at an annual interest rate of 7 percent which BFIs will have to re-lend at not more than 10 percent. The rate for hydropower and agriculture sectors will be 6.5 percent.

The interest rate for the special refinancing—applicable for export industry, sick industry, small and cottage industry and foreign employment of a specified section of the people—has been maintained at 1.5 percent, and BFIs cannot charge more than 4.5 percent interest from borrowers under this facility.

NRB will be changing the provision that penalises BFIs defaulting refinanced amount. The central bank will now charge interest 3 percent higher than its bank rate to defaulting BFIs as penalty. As per the existing provision, NRB charged the maximum interest rate maintained by defaulting BFIs. The NRB bank rate is at 7 percent currently.

“Although we deduct the refinanced amount from the accounts of defaulting BFIs, the penalty provision is just a warning,” said the NRB official.

Source: The Kathmandu Post