Bankers voice for establishment of asset reconstruction company

Kathmandu, Oct. 27

Bankers have stressed the assessment of the potential crisis that the non-performing loans (NPLs) and non-banking assets (NBAs) could create in the banking system of the country and the establishment of an asset reconstruction company (ARC) for their management.

Speaking at a symposium on Asset Reconstruction Business organised by the Confederation of Banks and Financial Institutions in Nepal (CBFIN) in the Capital, they said that the solution to the challenges posed by the growing NPLs and NBAs should be sought as soon as possible.

President of CBFIN, Upendra Poudyal, said that some people are not paying their loans owing to various financial challenges while some have intentionally deterred from it.

"Whatever might be the reason, the NPL has been becoming riskier. The BFIs have to focus more on debt recovery and management of non-banking assets rather than purely banking services and activities. It has created challenges both to the BFIs and the economy," he said.

According to Poudyal, the problems that have gradually appeared in the management of the increasing non-performing loans and the sale of the properties held as collateral have not been carried out and the BFIs have to accept them as the non-moveable assets.

"In such a situation, we need an asset reconstruction company so that the BFIs can focus on purely banking activities," he said.

Former CEO of Asset Reconstruction India Limited (ARCIL), Vinayak Bahuguna, said that although there is a need to create ARC, special caution should be paid while creating one.

According to him, the success of asset reconstruction/asset management companies depends on the country's financial stability and dynamism, favourable environment and policy, and political commitment and support.

"Non-performing loan/property statistics, statistical analysis and classification, investment, investor/market conditions, favourable legal environment, and regulatory competence and efficiency are the other factors that determine the success of the ARCs," he said.

Although some problems have been observed in the initial management and operation of such companies in India, the positive results are emerging in the recent times, said Bahuguna.

Speaking at the programme, bankers said that they have been raising the issue regarding the establishment of appropriate institutions for the proper management of the NPLs and NBA after the COVID-19 pandemic. "Although the establishment of an asset management company has been conceptualized as a policy, no meaningful initiative is being taken," said Rajesh Upadhyay, Senior Vice President of CBFIN.

The bankers agreed that the establishment of such a company has become the need of the day as there has been a massive contraction in the banking business as the number of non-banking assets put up for auction and foreclosures has increased, and it has gradually affected the overall economy.

As bad loans and non-banking assets of banks and financial institutions are piling up every year, the situation is gradually heading towards adversity, so the bankers said that there should be no delay in opening a company of a permanent nature in order to deal with this problem in the long term.

 Published in The Rising Nepal daily on 28 October 2024.