KATHMANDU, MAR 23 - 2012
Nepal Rastra Bank (NRB) has been mulling limiting credit under the personal loan and overdraft headings to Rs 10 million after finding that borrowers had been misusing a majority of such loans.
The central bank has recently sought the opinion of bankers in this regard. “Till now, we have no details on which sectors are receiving such credit and how it is being used,” said an official from NRB. “This will increase the credit risk tremendously.”
NRB officials claim they have found the credit issued under this heading being used for “window dressing”. Window dressing is a set of actions or manipulation where borrowers are provided additional funds to pay interest on their loans so that they don’t become substandard or non-performing. This action increases the profit of the banks and their balance sheet looks good in the short run but increases the risk in the long run.
Bankers agree that credit issued under such headings is being misused but are against putting a cap on it as suggested by NRB. They say that the central bank should monitor the lending done under such headings but should not impose a cap on it. “Most small and medium enterprises (SMEs) finance their business through credit issued under personal loans as their book-keeping and accounting do not have high standards,” said a banker. “Once the amount of personal loan is capped, they will find it difficult to finance their business.”
The central bank official, however, said that they would not impose a limit immediately. “Currently, we have only shown our concern, and are seeking the opinion of bankers so that we will be aware of the implications of the policy,” said the official. “We will issue a directive after winning the confidence of bankers.”
Likewise, the central bank also plans to regulate banks and financial institutions (BFIs) during the procurement of fixed assets like land and buildings. NRB has asked bankers for their opinion about not allowing them to purchase fixed assets with a value exceeding their paid-up capital.
“The paid-up capital is capital owned by the shareholders and the rest of the money belongs to the depositors,” said an NRB official. “BFIs do not have a right to invest their money on land and buildings.” Bankers have agreed to this and said that NRB should bring directives to regulate it.
Source: Kantipur
Nepal Rastra Bank (NRB) has been mulling limiting credit under the personal loan and overdraft headings to Rs 10 million after finding that borrowers had been misusing a majority of such loans.
The central bank has recently sought the opinion of bankers in this regard. “Till now, we have no details on which sectors are receiving such credit and how it is being used,” said an official from NRB. “This will increase the credit risk tremendously.”
NRB officials claim they have found the credit issued under this heading being used for “window dressing”. Window dressing is a set of actions or manipulation where borrowers are provided additional funds to pay interest on their loans so that they don’t become substandard or non-performing. This action increases the profit of the banks and their balance sheet looks good in the short run but increases the risk in the long run.
Bankers agree that credit issued under such headings is being misused but are against putting a cap on it as suggested by NRB. They say that the central bank should monitor the lending done under such headings but should not impose a cap on it. “Most small and medium enterprises (SMEs) finance their business through credit issued under personal loans as their book-keeping and accounting do not have high standards,” said a banker. “Once the amount of personal loan is capped, they will find it difficult to finance their business.”
The central bank official, however, said that they would not impose a limit immediately. “Currently, we have only shown our concern, and are seeking the opinion of bankers so that we will be aware of the implications of the policy,” said the official. “We will issue a directive after winning the confidence of bankers.”
Likewise, the central bank also plans to regulate banks and financial institutions (BFIs) during the procurement of fixed assets like land and buildings. NRB has asked bankers for their opinion about not allowing them to purchase fixed assets with a value exceeding their paid-up capital.
“The paid-up capital is capital owned by the shareholders and the rest of the money belongs to the depositors,” said an NRB official. “BFIs do not have a right to invest their money on land and buildings.” Bankers have agreed to this and said that NRB should bring directives to regulate it.
Source: Kantipur
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