KATHMANDU, JUL 29 - 2012
The central bank’s new provision regarding trust receipt (TR) loan has landed industries in trouble. According to a recent directive by the Nepal Rastra Bank (NRB), banks and financial institutions (BFIs) are not allowed to extend other types of loans to businesses to clear TR loan. If other types of loans are issued to clear TR loan, it should be categorised as non-performing loan (NPL), as per the new provision.
Industries generally take TR loan while importing raw materials with pay back period of 90 days. They take short-term loans whenever they fail to clear the TR loan within 90 days.
Industrialists argue that given the country’s very poor industrial condition, it is almost impossible to convert raw material into finished goods within 90 days and clear the TR loan. “It is impossible to run factories by taking TR loans for 90 days. Businesses were paying such loans within two to four months with the help of short-term loans,” said an industrialist.
Pradeep Jung Pandey, vice-president of Federation of Nepalese Chamber of Commerce and Industries said that NRB’s new provision has come at the wrong time. “Productive sector is already going through a lot of problems,” said Pandey. “This provision instead of supporting productivity will have an adverse effect on industries.” He expressed fear that the provision, which came at the time of political instability, labor problem and power crisis, will take a heavy toll on industrialists. “In other countries, government provides facilities to productive sectors. In our case, they are affected from all sides,” Pandey added.
According to an official from the Nepal Bankers’ Association (NBA), the change made in TR loan will definitely leave many industries in problem. “None of the factories can process the raw material into finished goods and sell them in the market in 90 days,” said the official. “At a time when the industrial environment is poor, this provision will further mar the industries.”
The NRB, however, has said that it has asked bankers to suggest the central bank if the provision has created problems. “We have asked them to write us about the problem,” said Bhaskar Mani Gnawali, spokesperson at the NRB. “The latest change was made to address the misuse of TR loan.” According to NRB statistics, BFIs has extended around Rs 36.09 billion to various industries under TR and import loan by mid-May. Out of that, commercial banks have disbursed Rs 36.01 billion, with rest of the lendings extended from the development banks.
Another NRB official said that the directive was issued to discourage the tendency of increasing the deadline of TR loan payment. “Most of the BFIs are run by the industrialists and they are complaining it as they are affected,” said the source. “It might take time to process the raw material into finish goods but it should not affect them in repaying term loan.” Some of the bankers have also welcomed NRB’s new move. NIC Bank CEO Sashin Joshi welcomed the NRB’s directive, saying that industries have other options and thus they will not be jeopardised by the new provision in TR loan.
Source: The Kathmandu Post
The central bank’s new provision regarding trust receipt (TR) loan has landed industries in trouble. According to a recent directive by the Nepal Rastra Bank (NRB), banks and financial institutions (BFIs) are not allowed to extend other types of loans to businesses to clear TR loan. If other types of loans are issued to clear TR loan, it should be categorised as non-performing loan (NPL), as per the new provision.
Industries generally take TR loan while importing raw materials with pay back period of 90 days. They take short-term loans whenever they fail to clear the TR loan within 90 days.
Industrialists argue that given the country’s very poor industrial condition, it is almost impossible to convert raw material into finished goods within 90 days and clear the TR loan. “It is impossible to run factories by taking TR loans for 90 days. Businesses were paying such loans within two to four months with the help of short-term loans,” said an industrialist.
Pradeep Jung Pandey, vice-president of Federation of Nepalese Chamber of Commerce and Industries said that NRB’s new provision has come at the wrong time. “Productive sector is already going through a lot of problems,” said Pandey. “This provision instead of supporting productivity will have an adverse effect on industries.” He expressed fear that the provision, which came at the time of political instability, labor problem and power crisis, will take a heavy toll on industrialists. “In other countries, government provides facilities to productive sectors. In our case, they are affected from all sides,” Pandey added.
According to an official from the Nepal Bankers’ Association (NBA), the change made in TR loan will definitely leave many industries in problem. “None of the factories can process the raw material into finished goods and sell them in the market in 90 days,” said the official. “At a time when the industrial environment is poor, this provision will further mar the industries.”
The NRB, however, has said that it has asked bankers to suggest the central bank if the provision has created problems. “We have asked them to write us about the problem,” said Bhaskar Mani Gnawali, spokesperson at the NRB. “The latest change was made to address the misuse of TR loan.” According to NRB statistics, BFIs has extended around Rs 36.09 billion to various industries under TR and import loan by mid-May. Out of that, commercial banks have disbursed Rs 36.01 billion, with rest of the lendings extended from the development banks.
Another NRB official said that the directive was issued to discourage the tendency of increasing the deadline of TR loan payment. “Most of the BFIs are run by the industrialists and they are complaining it as they are affected,” said the source. “It might take time to process the raw material into finish goods but it should not affect them in repaying term loan.” Some of the bankers have also welcomed NRB’s new move. NIC Bank CEO Sashin Joshi welcomed the NRB’s directive, saying that industries have other options and thus they will not be jeopardised by the new provision in TR loan.
Source: The Kathmandu Post
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