KATHMANDU, March 14: Nepal Rastra Bank (NRB) has made amendment to the provision related to classification of loans of bank and financial institutions (BFIs).
Issuing a circular to the licensed 'A', 'B' and 'C' class BFIs on Friday, the central bank instructed them to classify their non-performing loans (NPL) into five different types
BFIs were earlier required to classify loans into Pass, Sub-standard, Doubtful, and Loss categories, depending on duration of delay in debt servicing. Now they will have to add one more category -- Watch List.
According to new requirements, a lender has to classify loans which have not been serviced for three months as 'Pass' loans. 'Watch List' also includes loans which have not been serviced for three months. But 'Watch List' includes loans whose principal and interest have not been paid within the repayment period.
Non-performing loans not serviced for three to six months will have to be classified as 'Sub-standard' loans. Similarly, loans not service for six months to one year will have to be classified as 'Doubtful' loan. The 'Loss' loans are those whose interest and/or installment of principal has not been paid for more than one year.
NRB has instructed the BFIs to set aside provision amount of one percent for 'Pass' loans, five percent for 'Watch List' loans, 25 percent for 'Sub-standard' loans, 50 percent for 'doubtful' loans and 100 percent for 'Loss' loans.
The central bank has also defined 'Pass' and 'Watch List' loans as 'performing loan' and restructured, sub-standard, doubtful and loss loans as 'non-performing loans'.
Meanwhile, NRB has prohibited BFIs from charging its clients for the electronic clearing of checks for the amount below Rs 200,000. Earlier, the BFIs were allowed to charge its clients for electronic clearance of check amount above Rs 500. "Charge for the clearing of check even for small amount could lead to preference of cash among clients. Thus we have decided to scrap the provision that allowed BFIs to charge clearing fee for the check amount below Rs 200,000," Manmohan Kumar Shrestha, executive director at Banks and Financial Institutions Regulation Department of NRB, told Republica.
Likewise, the NRB has also instructed BFIs, including 'D' class micro-finance development banks, to appoint CEO and make appointment to managerial posts within three months of the posts falling vacant. Shrestha said the new provision has been introduced to ensure corporate governance in BFIs.
Source: Republica
