With the move of the Nepal Rastra Bank (NRB) to reduce bank rate and extension of restructuring and rescheduling of loans till mid-July 2023, the third quarterly review of the monetary policy has given breathing space to banks and financial institutions (BFIs). Of late, the rise in non-performing loans (NPL) and non-recovery of the loans have been the biggest concern of banks. In response to the deteriorating situation, BFIs have made their recovery departments active adding more human resources while CEOs themselves have been visiting outside Kathmandu to expedite loan recovery. Unveiling the third quarterly review of the monetary policy on Friday, the NRB lowered the bank rate by one percentage point. The central bank has provided refinancing facilities to businesses that faced negative growth for consecutive two quarters. The NRB has said that loans related to hotels and restaurants, animal husbandry, the construction sector, and loans in other sectors up to Rs 50 million can be restructured & rescheduled by mid-July 2023.

With the economic downturn taking a huge toll on business activities, borrowers are facing difficulties to repay their debts resulting in growth in the bad loans of BFIs. As of mid-April, 2023, the commercial banks’ NPL has reached 3.03 percent, development banks' 4.42 percent, and finance companies’ 6 percent.

“As the central bank has given the mid-July, 2023 deadline for the restructuring and rescheduling of loans, it has not only given breathing space to the borrowers but also to the BFIs,” said former banker Bhuwan Dahal. “The BFIs have been publishing auction notices. Now, they can go for rescheduling and restructuring based on the borrowers’ plan.” The refinancing facility will enable businesses in the downturn-affected sectors to avail loans at cheaper rates. According to Dahal, there is a need to add momentum to the economic activities as foreign exchange reserves are in a comfortable position while BFIs’ have over Rs 200 billion in liquidity. “I think the message the NRB has given is to start giving loans to make the economy vibrant,” said Dahal. Bankers say the changes made in the third quarterly review will help them to reduce the NPLs. “Given the economic slowdown, it was difficult for the borrowers to pay their debt timely, whereas the banks were struggling in loan recovery,” said Sudesh Khaling, CEO of Everest Bank. “Now, the refinancing facility and restructuring/rescheduling policy along with the reduction in bank rate has given some space for both the borrowers and banks.” At the same time, bankers also stress that BFIs should be more responsible this time when it comes to loan restructuring and rescheduling. “Earlier, these facilities were provided during the Covid-19 period and the loans were not properly utilized which is one of the reasons behind the current economic problems,” said Khaling, adding, “Therefore, banks should be more responsible in this. Banks should work carefully to make proper utilization of these facilities.” According to bankers, restructuring and rescheduling provisions will give relief to small borrowers. But bad loans should not be forcibly converted into active loans, they say. Nepal Bankers' Association President Sunil KC said that initiatives taken by the central bank in the third quarter review of monetary policy are welcome. “This will help the ailing private sector,” he said. “The reduction in the bank rate will allow the BFIs to reduce interest rates.” According to KC, when the interest rate decreases, it could increase the demand in the market. The refinancing provision will help in liquidity management. NRB has said that the policy arrangements in the third quarterly review of the monetary policy including a reduction in bank rates and refinancing facilities will bring vibrancy to the sluggish economy. Stating that the restructuring of loans will help the borrowers, NRB Governor Maha Prasad Adhikari said the flexible stance taken by the central bank would reduce the interest rates. “We have carefully made the monetary policy flexible after taking into account the situation of the last nine months,” said Governor Adhikari in a press meet on Friday. “We have reduced the bank rate. We have provided facilities for loan restructuring by the banks themselves.” Governor Adhikari was under pressure from the Finance Ministry which wanted a flexible monetary policy while the International Monetary Fund was of the view that the time had not come to ease the monetary policy.