Provision to defer mortgage auction process of creditors hit by the virus has been removed
Kathmandu, February 9
In what could be interpreted as the return to normalcy post-COVID, the Nepal Rastra Bank has removed special provisions issued earlier to minimise the impact of COVID-19 on the country's economy as well as the financial sector.
Issuing amendments to the Unified Directive 2022 for class A, B, and C banks and financial institutions today, the central bank removed the provision that allowed BFIs to reduce the instalment amount if the financial condition and cash flow of a borrower had been negatively affected due to the pandemic.
Similarly, the provision to postpone the mortgage auction process of creditors affected by the virus has been removed, along with special provisions mentioned in the unified circular related to COV- ID-19 till 24 August 2021.
Moreover, the NRB has introduced provisions related to certain circumstances in which the debtor's ability to pay the loan is understood to have decreased.
As per the unified directive, 2/708 Subsection 4 of Section 8, a debtor's ability to repaythe loan is understood to have decreased if loan instalments or interest are not paid in time due to cost overrun, time overrun, and cash flow mismatch, or if there is a situation where the future instalments or interest cannot be paid by a debtor in the fixed schedule due to adverse external conditions or any other reason even though the loan instalments or interest are paid in the fixed schedule, if the bor-rower company has become or is in the process of being delisted from the Nepal Stock Exchange Market, or if the borrower's actual financial condition or estimated financial condition is insufficient for loan instalment or interest payment.
As per the new provision, BFIs will have to follow 'Guidelines on Recognition of Interest Income 2019' issued by the central bank while accounting for interest income. Similarly,the maximum limit of credit that a licensed institution can extend to a single customer, firm, company, or group of related customers is termed as a single obligor limit.
In addition to the newly introduced provisions regarding the accounting of mergers and acquisitions, the merging or acquiring organisation will have to comply with the provisions of the 'NFRS 3 Business Combination and the Explana-tory Note on Accounting for Business Combination' when accounting for mergers and acquisitions, along with added requirements.
Also, the outstanding amount of renewable loans provided by banks and financial institutions by keeping the same current assets as hypothecation or pledge should be mentioned under the cash credit loan heading for the management of current assets of industrial and com-mercial companies/firms/institutions as part of the new provisions.
In addition, the licensed institutions have been directed to open an account only after making sure that the depositor is not blacklisted as per the details of the credit information centre.
The NRB has also directed BFIs to disburse the amount collected from the agricultural and energy bonds to the relevant sector within three years from the date of issuance of the bonds. BFIs that have issued agricultural and energy bonds cannot purchase bonds of the same nature issued by other organisations until the entire amount collected for the bonds is invested in the respective areas.
As for the remittance savings account provision, the customer must make a self-declaration that he does not have a remittance savings account in another institution.
Also, no other amount can be deposited or transferred from Nepal except the interest of the amount in the same account, the amount transferred from the remittance term deposit account and the payment received from the government agencies.
A version of this article appears in the print on February 10, 2023, of The Himalayan Times.
