Kathmandu. Nepal Rastra Bank has admitted that the bad loans of commercial banks have reached 8 percent. The Rastra Bank has admitted that the bad loan ratio has reached 8 percent while inviting deposits from banks and financial institutions.
Now, banks and financial institutions with gross NPLs of up to 8 percent will also be allowed to conduct government transactions. That is, they will also be allowed to take deposits from the Government of Nepal, public corporations and Nepal Rastra Bank. Previously, there was a provision that the NPL should be less than 5 percent to accept deposits from the Rastra Bank and other government institutions and conduct other financial transactions.
The Rastra Bank had invited banks and financial institutions to keep the deposits of Rs 4.79 billion it has on Sunday. Among the conditions, one important point states that ‘Non-performing loan (NPL) ratio should not exceed 8 percent and net non-performing loan (NPL) ratio should not exceed 3 percent.’
Previously, the National Bank had set a condition that the NPL ratio should be less than 5 percent for banks doing financial transactions with it. The Nepal Rastra Bank did not differentiate between gross NPL and net NPL.
Amidst the discussion that banks and financial institutions are being burdened by the burden of bad loans (NPL), the National Bank seems to have accepted it in a roundabout way.
An executive director of Nepal Rastra Bank said that NPL has stopped being a very big indicator. He had earlier said, “The National Bank does not consider NPL as an indicator of anything, we are going to keep the money of our employees as deposits, earlier we could not accept that those with more than five percent NPL pay good interest. Since we ourselves are issuing licenses and regulating, why not trust those institutions to do business?” We cannot keep money and tell citizens to keep money, so now we have asked them to keep deposits in institutions with gross NPLs below 8 percent.’
The executive director also said that banks and financial institutions are being encouraged to make their NPLs public. He also said that 7-8 percent NPLs should not be taken as a big deal.
According to data as of mid-February, the average NPL of commercial banks has reached 4.49 percent. It seems that the National Bank has now made arrangements to report gross NPLs and net NPLs separately.
After the National Bank accepted the 8 percent NPL figure through a roundabout way, the CEO of a commercial bank told Singha Durbar – ‘It has become easier for us now that the National Bank itself has accepted the 8 percent NPL. This will help us accept the truth in the banking sector and move forward on the path of reform.’
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