NRB Eases Loan Classification Rules

Nepal Rastra Bank (NRB) has introduced more flexible loan classification rules, amending the Unified Directive, 2081, applicable to Class A, B, and C banks and financial institutions. The central bank issued a circular on Monday, December 15, updating the framework to “support both borrowers and lenders”.

Loans need to be classified as bad once recovery efforts failed, the collateral auction started, or if a case was pending in court under the recovery process. However, following the amendment, loans that are regularised after the collateral auction process has begun will no longer be required to remain classified as non-performing. 

Guru Prasad Paudel, spokesperson at NRB, said the changes aim to address customer difficulties. “Basically, this is an update made to facilitate processes and ease certain provisions in a way that benefits both customers and banks.”

Bhuvan Dahal, former CEO of Sanima Bank, welcomed the amendments, noting they would simplify the classification process. “If a loan has become regular, it no longer needs to be classified as non-performing,” Dahal said.

The circular also updates provisions related to the watchlist. Previously, multi-banking loans of Rs 2 billion or more that had not been converted into consortium financing loans were required to be categorised under watchlist. While this rule remains in place, short-term, non-renewable working capital loans under a pari passu agreement are now exempt.

A consortium financing loan refers to a loan extended to a single customer, firm, company, or project by two or more BFIs under a mutually agreed arrangement.

The NRB has also made loan repayment adjustments flexible. If the interest rate changes and the instalment amount is revised, the instalment may be adjusted at most once a year by analysing the borrower’s income, provided the borrower makes a written request. 

BFIs sell pledged collateral to recover outstanding principal and interest if loan recovery fails. However, if collateral remains unsold after completing at least three auction attempts, the BFIs will be required to acquire the assets themselves.

Additionally, the central bank has removed the previous requirement for BFIs to maintain 100 percent loss provisioning on non-banking assets from the date of acquisition. Loss provisioning created for sold non-banking assets no longer needs adjustment.

In cases of erroneous blacklisting, if any individual, firm, company, or institution has been mistakenly included in a blacklist or defaulters’ list, the chief executive of the concerned BFI may request immediate removal. It must ensure that no record of blacklisting remains. Those removed due to error will not be considered as having been blacklisted. BFIs are required to report such cases quarterly to their boards.