NRB amends 'Working Capital Loan Guidelines'

Loan-size not governed by the guidelines raised to Rs. 10m, repayment period extended till mid-July 2025

 

Kathmandu, Jan. 4

The Nepal Rastra Bank (NRB) has amended the 'Working Capital Loan Guidelines, 2022' implemented in October last year allowing the creditors, who have obtained the loans above the limits set by the central bank, to clear such loans in a period of two-and-a-half years.

Now the creditors can clear the loan by mid-July 2025, repaying it in installment of various sizes. The installments to repay the limit-exceeding working capital loans are 10 per cent by mid-July 2023, 20 per cent by mid-January 2024, 20 per cent by mid-July 2024, 20 per cent by mid-January 2025 and 30 per cent by mid-July 2025.

No businesses can demand or get working capital loans beyond the limit set by the NRB and this leverage is provided to the creditors who had the portfolio larger than the prescribed size before the implementation of the guidelines in mid-October.

As per the guidelines, a firm with an estimated annual transaction up to Rs. 20 million will get a loan of up to 20 per cent of its annual turnover. However, it can obtain up to 40 per cent of annual turnover amount in special cases. The new provisions have clauses whereby the businesses seeking such loan should submit the audit reports of the past five years and it should be utilised for commercial purposes.

The central bank has also informed that the duration, repayment schedule and installment amount cannot be changed.

Likewise, according to the amended provisions, if any entrepreneur wanted to repay the term loan for the working capital purposes, the banks and financial institutions (BFIs) cannot levy any prepayment charges. However, this provision doesn't apply in case of credit purchase or takeover or transfer of such loans.

NRB addresses private sector's demand

Private sector entrepreneurs, including their organisations like the Federation of Nepalese Chambers of Commerce and Industry (FNCCI), Confederation of Nepalese Industry (CNI), Nepal Chamber of Commerce (NCC), commodity business associations and regional chambers had been demanding the repeal or postponement of the guidelines since its implementation more than two-and-a-half months ago.

However, the central bank had been refusing to listen to their demands maintaining that the new guidelines were introduced to check the misuse of loans in unproductive sectors. Governor of the NRB, Maha Prasad Adhikari had said in September 2022 after the amendment of the guidelines a month earlier that there had been overfinancing in the name of banking capital and the central bank wanted to make sure that the loan was utilised for commercial purposes.

The NRB had also said that the business persons maintaining transparency in business and utilising the loans for the stated purpose, and ex-CEOs of the BFIs had welcomed the move.

Meanwhile, the central bank had found a middle way of extending the repayment period up to two-and-a-half years without scrapping or postponing the implementation of the new guidelines.

NRB raises loan size

However, the central bank has raised the limit of the loan size that is not covered by the provisions of the guidelines to Rs. 10 million, which was set at Rs. 5 million earlier. Likewise, the banks can mobilise loans for 3-10 years period for the purpose of permanent working capital. The period was five years earlier.

The guidelines have given the responsibility to the banks for the surprise inspection of working capital and liabilities. However, in case of the working capital of up to Rs. 50 million, a quarterly report authenticated by the customer would be valid. Before the amendment, the customers had to submit their monthly reports.

For the loans above Rs. 50 million, the customer should submit a half-yearly report approved by the respective company's internal auditor.

PM discusses issue with FM, Governor

Earlier, on Wednesday morning, Prime Minister Puspa Kamal Dahal ‘Prachanda’ had discussed the contemporary economic issues and problems in the banking and business sector with Deputy Prime Minister and Finance Minister Bishnu Poudel and Governor Adhikari.

DPM Poudel and Governor Adhikari had reached Prime Minister’s official residence Baluwatar to meet the PM, according to the Prime Minister's secretariat. 

During the discussion, Prime Minister Prachanda expressed his concern over the recent problems and challenges in the banking sector, read a statement issued by the secretariat.

PM Dahal stressed on the need to reduce the interest rate and improve the monetary policy regarding liquidity problems and also to take other necessary initiatives.

“Due to the challenges in the country's economy, it is necessary to find ways to minimise its impact on the people, stop the flow of loans to the unproductive areas and make people well informed and aware of the country’s economic status,” he said. 

Meanwhile, in the afternoon on Wednesday, DPM Poudel said that it is necessary to create harmony between the fiscal policy of the government and monetary policy of the central bank.

"There should be a lively relationship between the Ministry of Finance and NRB, but no interventions," he said while listening to the departmental presentations at the ministry.

Published in The Rising Nepal daily on 5 January 2023.