Banks recovering interest from available credit of borrowers

Kathmandu December 21- With borrowers failing service their loans timely, banks have started to recover interest from the loanees’ available credit. Available credit is the difference between the amount of the credit limit and the amount that has already been borrowed. Available credit is considered readily available for withdrawal.

Amid Tarai unrest and India’s trade embargo, businesses are finding it difficult to run their operations and generate enough cash flow to service their loans. Stating that recovering interest from the loanees’ available credit would be helpful in the short term, bankers, however, admitted such a practice would pose risk to the banks as the borrowers’ liabilities go up.

Bankers say the demand for credit has remained low as businesses struggle. But the Nepal Bankers’ Association data suggests something different. Since India imposed the blockade on Sept 22, lending growth has been higher than deposit growth. While the banks’ deposit mobilization grew by Rs31 billion from the period between Sept 25 and Nov 27, their credit disbursement increased by Rs41 billion. Banks recovering interest from available credit could be one of the reasons why the lending seems to have grown.

According to bankers, most of borrowers have not fully utilised their credit line after the political crisis began. So banks have also started to reduce the limit. If one gets a limit of Rs10 million, banks have been reducing it to Rs5-6 million.