NRB came with a new directive (as on 29-11- 2071) which direct bank and financial institution to add one additional type of loan in their loan category as "Watch List".
BFI will have to classify their loan and advances into five category including "watch list" as new one.
What is "Watch List"?
As per the new NRB directive- A loan having met all the criteria of standard or good loan but showing sign of vulnerability will have to be categorized under a new type of loan i.e. Watch List.
As per the new NRB directive- A loan having met all the criteria of standard or good loan but showing sign of vulnerability will have to be categorized under a new type of loan i.e. Watch List.
# Pass loan(Not overdue and over due upto 3 month):
Loan and advances whose interest and principal is being paid by the client on the regular basis or with in the time period of three month is called pass loan. The provisioning requirement for this kind of asset is 1% of total pass(standard) loan
Loan and advances whose interest and principal is being paid by the client on the regular basis or with in the time period of three month is called pass loan. The provisioning requirement for this kind of asset is 1% of total pass(standard) loan
# Watch list:
As explained above it is new category of loan which posses the characteristics of pass loan but carry/shows some amount of potential risk. The purpose of identification of potential NPL is to ensure that timely appropriate corrective steps could be initiated by BFI to protect against the NPL. As per new directive of NRB, BFI from now afterwards will have to maintain 5 % provision for this category of loan. As per NRB directive under below condition loans/advances shall categories under watchlist category:
As explained above it is new category of loan which posses the characteristics of pass loan but carry/shows some amount of potential risk. The purpose of identification of potential NPL is to ensure that timely appropriate corrective steps could be initiated by BFI to protect against the NPL. As per new directive of NRB, BFI from now afterwards will have to maintain 5 % provision for this category of loan. As per NRB directive under below condition loans/advances shall categories under watchlist category:
a) Principal or intrest overdue by above 1 months
b) All Short term or working capital loan pending for renewal & all temporary extension.
c) All those loan which has been categorised under Bad loan
d) Despite of regular payment of interest & principal by Firm/company but suffering loss for two consecutive FY. But the loan provided to project under construction, these arrangements shall be applicable only after commercial production.
e) As per point numbers 33 of NRB directive all multi Banking loan which has not been converted in to consortium financing.
f) All those loner whose cash flow & week operations of the project & which is directed to keep under Watch List by NRB after supervision
# Substandard Loan(over due by 3-6 month):
Under this category all those loan whose interest and principal remain unpaid for the period of three to six month is regarded as substandard loan. The provisioning requirement for this kind of loan is 25% of total substandard loan.
Under this category all those loan whose interest and principal remain unpaid for the period of three to six month is regarded as substandard loan. The provisioning requirement for this kind of loan is 25% of total substandard loan.
# Doubtful Loan (overdue by 6-12 month):
Interest and principle remain due up to six to twelfth month of due date is categorized as doubtful loan. The provisioning requirement is 50% of total doubtful loan.
Interest and principle remain due up to six to twelfth month of due date is categorized as doubtful loan. The provisioning requirement is 50% of total doubtful loan.
# Loss Loan( overdue by 1 year and above):
Interest and principle remain due up to 1 year and more is termed as loss loan. 100% provisioning is made for this type of loan.
*Performing loan=
Pass loan+ watch list
*Non-Performing loan=
Substandard loan + Doubtful loan + loss loan
Conclusion...
Non performing loan is one of the major issue faced by BFI in nepal. Increasing level of NPL is putting pressure over banking industry of nepal. In this situation this new directive will have some positive impact in lowering the level of NPL in effective way.
Interest and principle remain due up to 1 year and more is termed as loss loan. 100% provisioning is made for this type of loan.
*Performing loan=
Pass loan+ watch list
*Non-Performing loan=
Substandard loan + Doubtful loan + loss loan
Conclusion...
Non performing loan is one of the major issue faced by BFI in nepal. Increasing level of NPL is putting pressure over banking industry of nepal. In this situation this new directive will have some positive impact in lowering the level of NPL in effective way.
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