NRB directs BFIs to apply fixed interest rate in lending

Kathmandu, Sept. 8

The Nepal Rastra Bank has directed the banks and financial institutions (BFIs) to maintain the fixed interest rate for the loans that have at least one year or more repayment period.

Amending its Unified Directives 2019, the central bank has asked the bank to maintain stable interest rates in the mobilisation of credit for more than a year period. However, they can opt for the adjustable interest rate if the client wishes to obtain loan with them.

This provision is applicable to all individual loans, including home loan/housing loan, auto/vehicle loan and hire purchase loan, given with more than a year’s repayment period, that have monthly or other periodic repaid provisions.

The BFIs of all class, commercial banks, development banks and finance companies, now should change the term of references of the individual loan dispensed with monthly/tri-monthly/periodic repayment options to implement stable interest rate in the request of the customers.

According to the NRB, the changes in the terms of loan, repayment schedule or instalment amount should not be considered rescheduling or restructuring. The fixed interest rate should be set and published on a half-yearly basis.

However, the banks can change the interest rate in the deposits. They can change it a month in advance.

The amendment of the directives has made a new provision for the BFIs to spend 5 per cent of their Corporate Social Responsibility Fund in the financial literacy programmes to enhance the access of women and socially deprived groups to the financial services.

The central bank has further clarified its provision regarding Initial Environment Examination (IEE) an Environmental Impact Assessment (EIA) while lending to the projects and industries.

While lending to the projects and industries, the BFIs must ensure that the former had obtained the approval of IEE and EIA reports of the respective projects from the respective agencies.

In case of the projects that do not need IEE or EIA, the banks must analyse it by themselves.

Meanwhile, the central bank had organised a virtual interaction with the chief executive officers of the BFIs on Tuesday afternoon.

NRB Governor Maha Prasad Adhikari said that the central bank had received complaints that the applications for the refinancing were denied by the BFIs and urged them to be more responsible and adhere to the policy and provisions issued by the NRB.

He said that the banking system has about Rs. 200 billion liquidity for the last few months. “This is an opportunity for the BFIs. You should be responsibly handling the money and take the next steps cautiously,” he said.

Published in The Rising Nepal daily on 9 September 2020.