Nepal Rastra Bank has finally amended the Guidelines on Working Capital Loans-2022 by relaxing its provisions after a strong protest and intense lobbying by the business community.

Since the guidelines were implemented starting on October 18, private sector representatives have been protesting against provisions of the guidelines which linked the availability of such credit with the annual turnover of the borrower.

The banks were following up with borrowers seeking repayment of excess credit made available to them.

On Wednesday, the central bank released the amended set of guidelines giving a deadline for borrowers to repay the excess credit by mid-July 2025.

They however are required to complete repaying the excess credit in five instalments in the next two and half years.

They are supposed to repay at least 10 percent of the excess credit by the end of the current fiscal year 2022-23.

An additional 20 percent should be repaid by mid-January 2024, the next 20 percent by mid-July 2024, the next 20 percent by mid-January 2025 and the final 30 percent by mid-July 2025.

There can be no change in this repayment schedule and payment amount, the central bank said in the amended guidelines.

The provision will help the borrowers who had taken more working capital loans than the set threshold. A borrower can receive working capital loans up to only 20 percent of the estimated annual turnover for loans less than Rs20 million.

Likewise, a borrower can receive up to 25 percent of the total annual turnover for loans over Rs20 million. The repayment period of such credit should be one year or less.

But the borrowers can get a permanent type of working capital loan with a repayment period ranging from three years to 10 years and there will be no threshold of working capital in such loans.

“Earlier, there was no deadline for repaying the excess credit and the banks were following up with the borrowers seeking repayment instantly,” said Gunakar Bhatta, spokesperson of NRB. “Otherwise, the banks should have made 100 percent provisioning of excess credit.”

After finding that some borrowers were taking more than the required working capital loans to use such loans for purposes other than intended, the central bank set a maximum limit on working capital loans.

The central bank has suspected that excess loans have been used in real estate and other risky areas which could harm the banking sector.

“By taking short-term working capital, the borrowers were found to have invested in long-term projects such as buying real estate,” said NRB spokesperson Gunakar Bhatta. “That’s why the central bank had to introduce the guidelines on working capital to control division of the credit to other purposes.”

The central bank has also relaxed the provision for small borrowers. The provisions of working capital guidelines will not apply for loans less than Rs10 million. Earlier, such a threshold was set at Rs50 million.

The private sector has been protesting the guidelines' provisions since it came into effect and lobbied hard with political leaders and central bank officials.

They submitted a memorandum demanding a change in the guidelines and lobbied hard with the political leaders and ministers after the new government was formed.

On Monday, central bank governor Maha Prasad Adhikari held talks with the top leadership of the private sector bodies including the Federation of Nepalese Chambers of Commerce and Industry, Confederation of Nepalese Industries and Nepal Chambers of Commerce. The central bank had also sought feedback from the banks and financial institutions about the difficulties in implementing the provision of the guidelines.

Finally, the central bank came up with the amended guidelines, relaxing many provisions which gave respite to many borrowers who were facing pressure from banks and financial institutions to repay the excess loans at the earliest. “I think the central bank has been flexible to address the borrowers’ concerns,” said Bhatta.