Kathmandu, October 27

Owing to hardships faced by entrepreneurs due to the unfavourable economic situation, Nepal Rastra Bank — the central regulatory and monetary authority — today announced a relief package on principle, instalment and interest repayment for borrowers.

Issuing a circular, NRB has waived the charges imposed by banks and financial institutions (BFIs) for delay in loan repayment till mid-January, 2016 (second quarter of the current fiscal). BFIs can now arrange their loan-loss provision accordingly, which means no additional loan-loss provision will be needed till the second quarter (Q2).

BFIs have been allowed to set aside only one per cent as loan-loss provision of the total loans that had a good debt servicing track record till mid-April 2015, even for delayed repayment.

Likewise, NRB has also relaxed provisions for affected borrowers under ‘watch list’ category while making loan-loss provisioning. Unlike the requirement to increase the provisioning by 0.5 percentage point every quarter for loans under the ‘watch list’ category, BFIs can now set aside only two per cent of the loan-loss provisioning until the third quarter of the current fiscal. BFIs were supposed to provision 3.5 per cent loss of the total loans in the third quarter of this fiscal.

The central bank has also relaxed loan rescheduling or restructuring period for a year considering the deterioration in loan repayment capacity. Borrowers have been asked to negotiate with the concerned BFIs for loan restructuring or rescheduling by the second quarter of this fiscal. The concerned BFI can restructure or reschedule loan only if it is convinced by the borrower’s proposal. BFIs can account interest of the termed loan as income while rescheduling the loan, as per the circular. “And such interest income needs to be collected in a separate idle fund till the loan is repaid completely.” BFIs have been instructed to categorise such loans under ‘pass category’ or good loans category.

This provision will be applicable only for borrowers with a good track record in debt servicing till mid-April, 2015.

The central bank also extended another month (till mid-November) to the BFIs to publish the balance sheets of the first quarter (Q1).

They can incorporate the interest amount of mid-October but repaid by only mid-November in their Q1 balance sheets.

Projects under construction will get a grace period of one year if they have been affected by the current unfavourable economic situation. Those projects related to industry, trade, education, health, tourism and energy, among others, will get a grace period of one year if their instalment repayment period begins immediately after the completion of the project. BFIs need to transfer the interest income of the grace period to the capital adjustment fund from profit and loss settlement account, says the NRB circular.

Similarly, NRB also extended the recovery period of the loan issued for importers from 120 days to 180 days; however, such loans need to be recovered by mid-April, 2016. Letter of Credit (L/Cs) opened before the issuance of this circular will also benefit from this treatment, said NRB.