NRB to forbid BFIs from including capitalised interest from lending moratorium periods in profits

KATHMANDU: The Nepal Rastra Bank (NRB) has increased its efforts to prevent banks and financial institutions (BFIs) from showing capitalised interest on outstanding loans in their profit accounts during the moratorium period.

The Nepal Rastra Bank (NRB) has increased its efforts to prevent banks and financial institutions (BFIs) from showing capitalised interest on outstanding loans in their profit accounts during the moratorium period.

The NRB considered 11 different types of manufacturing businesses for interest capitalisation in the moratorium provision.

These include hydropower generation and distribution, clinker-based cement factories, drug manufacturers, cable cars, sugar production, dairies, government-approved medical colleges, standard hotels, hospitals, long-term agricultural projects involving fruits, spices, and herbals, and pulp-based paper manufacturers.

The moratorium period is the time period during which the firms are not required to repay the interest and loan amount to the BFIs. The BFIs have allowed different moratorium periods on the loans taken by the projects based on the nature of the projects.

Currently, BFIs have been including capitalised interest on such loans in profits to inflate the volume of their earnings.

The central bank has prohibited banks from paying out dividends based on such financial assets until they are converted into cash. However, the BFIs were required to pay their tax liabilities on capitalised interest that had yet to be realised in cash.

The NRB has asked the BFIs in the proposed provision to transfer cash into the profit and loss account only after the cash is realised on the capitalised interest amount.

The interest amount of the moratorium period must be capitalised by the BFIs under a separate heading ‘Interest Capitalized Term Loan.’ This sum should be kept in a separate reserve account in the financial report.