BFIs will now have to classify their loans into five categories including watch list. The other categories are pass (good) loan, substandard, doubtful and loss (bad) loan.  For loans in the watch list class, BFIs will have to maintain provisioning of 5 percent.  

The central bank has fixed the criteria for classifying a loan under watch list. A loan having met all the criteria of a good loan but showing signs of vulnerability will have to be categorized under the new loan type, according to a new NRB directive.

An NRB official said that the move had been taken as risks appeared even in good loans under the existing loan categorization.

According to the new directive, loans that have not crossed the repayment period or have fallen behind by three months should be categorized under good loan. Provisioning for this type of loan has been fixed at 1 percent.

However, if a borrower has a history of not repaying loan instalments as per the set timetable, the loan should be put under the new category. For example, if a borrower has failed to repay the principal and interest in monthly, quarterly or half-yearly instalments as planned, the loan will come under watch list.

Likewise, a loan whose maturity period has been extended temporarily and not been renewed will come under this new category.

A loan provided to a firm against the security of receivable amount but which will not be received in the next three months will come under the new category.

Similarly, a loan issued to a firm which has not made payment to suppliers of raw materials for more than three months will also come under watch list.  

For example, if a factory has received a loan of Rs250 million and it also owes the same amount to its raw material suppliers but does not have the cash to make payment or does not have goods in stock and amounts to be received, the loan will come under the new category.

Likewise, if a loan taken by a borrower from another bank or financial institution turns into a non-performing loan (NPL), and if the firm has a negative cash flow, negative operating capital and negative net worth for the last two years, its good loans will also come under watch list. Here, operating capital means the remaining assets after deducting operating liability from operating capital.

Cheque clearing fee banned

Nepal Rastra Bank (NRB) on Friday instructed banks and financial institutions not to charge a fee for clearing cheques for less than Rs200,000. Earlier, banks had decided to charge a fee for clearing cheques for more than Rs5,000. The Nepal Bankers’ Association had fixed the charge at Rs5 to Rs100 per cheque. A senior NRB official said that the move had been taken to discourage cash transactions and promote transactions by cheque even though they may be small.

Fill vacant posts pronto, says NRB

Nepal Rastra Bank on Friday directed banks and financial institutions to fill the vacant posts of chief executive officer and managers within three months of their falling vacant. Currently, a number of banks and financial institutions have been operating without a chief executive officer and are being run by acting chief executives. “The tendency of keeping the top executive post vacant for a long time allows the chairman to exercise executive powers, and that increases the risk of misuse of such powers for personal gain,” said an NRB  source. “So we have asked BFIs to fill such posts within 3 months.