Central bank allows borrowers to defer loan payment, restructure credit

Kathmandu January 15- Good borrowers, whose revenue sources have been hit by supply disruptions along Nepal-India border points, will not be fined even if they defer principal and interest payment till mid-April.

Issuing a directive on Thursday, NRB  instructed banks and financial institutions (BFIs) to allow borrowers with good credit history to push back loan repayment period by three more months.

“BFIs should not slap any fee or fine if the payment has been deferred. Also, loans whose repayment period has been postponed should be categorised as good or performing,” says the directive.

This is the third time that NRB has introduced such a facility. Earlier in July, NRB had allowed good borrowers to defer loan repayment period till mid-October. This facility was introduced to aid those affected by devastating quakes of April and May.

Then in October, NRB allowed borrowers to push back credit repayment till mid-January. This provision was introduced to support borrowers, whose revenue sources had dried due to supply disruptions and protests in the Tarai.

Today, NRB also instructed BFIs to restructure debt for a period of one year if borrowers prove their revenue sources have been hit by the ongoing crisis. This facility can be availed by borrowers who have exposure to manufacturing, trade, health, tourism, energy and other service sectors.

Under debt restructuring facility, existing debt, including outstanding interest amount, is replaced by new loan. This helps borrowers to avoid default.

Borrowers with good credit history can avail this facility if they submit application for debt restructuring by mid-April. Also, future repayment plan should also be submitted to be eligible for this facility, according to NRB.

Among others, NRB has allowed BFIs to extend the grace period for projects affected by the ongoing crisis by a year.

Grace periods are generally extended to projects like hydroelectric, which cannot generate revenue until completion of projects.

With the latest facility, such projects can get a grace period of another year — meaning instalment payment can be deferred by a year.

Also, tenure of trust receipt loan, which is extended to importers on the back of Letters of Credit (LCs), can now be extended from 120 days to 180 days. This provision will apply to LCs issued prior to issuance of yesterday’s directive.

The NRB was under pressure from the private sector to introduce these provisions as almost all of the sectors have been hit hard by the Tarai protests and blockade on Nepal-India border points.

Nepal is a land-locked country which gets almost all of its supplies from abroad, mostly from India. The trade embargo effectively choked supplies of petroleum products, life-saving medicines, food products, raw materials and other essentials.

Earlier, Pashupati Murarka, president of the Federation of Nepalese Chambers of Commerce and Industry, the largest umbrella body of the private sector, had said: “The cost of all the disruption stands at over Rs two billion per day.” Source: TKP