KATHMANDU: Nepal Rastra Bank (NRB) has amended, revised and added new provisions to the Unified Directives, 2024, issued to banks and financial institutions, introducing several changes related to loan classification, monitoring and repayment standards.
Under the revised provisions, loans of Rs 2 billion or more that have not been converted into consortium financing will now be kept under close or micro supervision. However, NRB has clarified that this provision will not apply to short-term working capital loans.
The central bank has also relaxed rules related to loans under auction or legal dispute. According to the amendment, loans for which recovery has not taken place and auction processes have begun, or cases that are sub judice, will no longer be mandatorily classified as bad loans if they become regular after the auction process starts.
NRB has further allowed national priority projects, such as hydropower, cable car projects, cement industries, star hotels and infrastructure construction, that face repayment difficulties due to investment or cost escalation, to maintain only a one percent loan loss provision if their loans are rescheduled or restructured. This facility applies only if the projects are operational or in the process of coming into operation, and if their production capacity expansion is ensured.
The amended directive also states that interest capitalized after the grace period fixed at the time of loan disbursement cannot be booked as income.
In another major change, the central bank has fixed the maximum debt-to-income (DTI) ratio at 50 percent for installment-based non-business loans and personal overdraft facilities. For loans extended for house and land purchase or construction, the maximum DTI ratio has been set at 70 percent.
NRB has made it mandatory for banks and financial institutions to calculate a borrower’s total annual income based on tax payment or tax filing certificates. Institutions must also update the DTI ratio annually by collecting income-related details from borrowers throughout the loan tenure. Loans extended beyond the prescribed limits will have to be classified under close supervision.
The revised directive also simplifies the process of removing individuals, firms or companies mistakenly placed on the blacklist. Instead of requiring a board recommendation, the chief executive officer of the licensed institution can now decide and request removal, ensuring the record is completely expunged.
Additionally, while blacklisted individuals are generally barred from opening bank accounts other than current accounts, NRB has now added salary accounts to the list of permitted exceptions.
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