KATHMANDU, June 4, 2012
Banks and financial institutions can now classify every group loan of up to Rs 10 million extended to cooperatives, other than savings and credit cooperatives, as lending to the deprived sector, according to a latest directive issued by the central bank on Sunday.
Nepal Rastra Bank (NRB) in its directive has however, said cooperatives cannot channel such credit amount for purposes other than group farming, poultry farming and animal husbandry. Loans to each member of cooperative also should not exceed Rs 90,000, the directive has said.
“The provision was introduced to promote the agricultural sector,” NRB Spokesperson Bhaskar Mani Gyawali said. “We hope this will encourage banks and financial institutions to flow credit to the sector.”
The directive was introduced at a time when NRB has directed all banks and financial institutions to extend at least 10 percent of the total lending to agriculture and energy sectors. The directive is also expected to help banks and financial institutions to meet their deprived sector lending target, which stand at 3.5 percent, 3 percent and 2.5 percent of the total credit portfolio for commercial banks, development banks and finance companies.
“But in case such credit is misused, banks and financial institutions have to label them as bad loans and slap 150 percent risk weight,” the directive has said. “However, no additional fee should be charged in case the borrower wants to clear the debt prior to maturity because of change in interest rates or terms and conditions,” the directive has said.
Meanwhile, the central bank in its directive has also said that loans extended by microfinance institutions with condition of recouping the outstanding payment on installment basis should be classified as term loans. “But such credit should be categorized as sub-standard, doubtful or bad loans even if the borrower defaults on payment of one installment,” according to Nepal Rastra Bank.
Source: Republica
Banks and financial institutions can now classify every group loan of up to Rs 10 million extended to cooperatives, other than savings and credit cooperatives, as lending to the deprived sector, according to a latest directive issued by the central bank on Sunday.
Nepal Rastra Bank (NRB) in its directive has however, said cooperatives cannot channel such credit amount for purposes other than group farming, poultry farming and animal husbandry. Loans to each member of cooperative also should not exceed Rs 90,000, the directive has said.
“The provision was introduced to promote the agricultural sector,” NRB Spokesperson Bhaskar Mani Gyawali said. “We hope this will encourage banks and financial institutions to flow credit to the sector.”
The directive was introduced at a time when NRB has directed all banks and financial institutions to extend at least 10 percent of the total lending to agriculture and energy sectors. The directive is also expected to help banks and financial institutions to meet their deprived sector lending target, which stand at 3.5 percent, 3 percent and 2.5 percent of the total credit portfolio for commercial banks, development banks and finance companies.
“But in case such credit is misused, banks and financial institutions have to label them as bad loans and slap 150 percent risk weight,” the directive has said. “However, no additional fee should be charged in case the borrower wants to clear the debt prior to maturity because of change in interest rates or terms and conditions,” the directive has said.
Meanwhile, the central bank in its directive has also said that loans extended by microfinance institutions with condition of recouping the outstanding payment on installment basis should be classified as term loans. “But such credit should be categorized as sub-standard, doubtful or bad loans even if the borrower defaults on payment of one installment,” according to Nepal Rastra Bank.
Source: Republica
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