Central bank directs BFIs to prioritize property auctions over swift blacklisting of debtors

KATHMANDU: Nepal Rastra Bank (NRB) has adopted a more lenient approach towards loan defaulters, urging banks and financial institutions (BFIs) to evaluate collateral values before resorting to blacklisting debtors. In a recent directive, the central bank instructed BFIs to prioritize auctioning the properties used as collateral before taking the step of blacklisting defaulters.

The directive specifies that if the proceeds from the auction fall short of covering the borrowed amount, BFIs must grant a 90-day extension to debtors for settling the remaining dues. This marks a departure from the previous practice where BFIs, after issuing a 35-day legal notice, promptly blacklisted borrowers in default.

Under the existing system, blacklisted individuals and businesses have their bank accounts frozen and are prohibited from opening new accounts or engaging in financial transactions through banks. However, the new directive introduces flexibility by allowing such individuals and businesses to utilize banking services for receiving pension and social security allowances.

In the case of joint-venture businesses facing blacklisting due to loan defaults, the directive permits them to continue banking transactions with their partner companies.

Previously, any company with a stake exceeding 15 percent in a joint venture would face blacklisting if their partner firms defaulted on bank loans. The updated provision ensures that partner companies are not penalized solely based on the actions of their defaulting partners.

Recent observations indicate a significant increase in BFIs blacklisting borrowers who fail to meet their payment obligations on time.

According to the Credit Information Bureau (CIB), as of mid-November this year, BFIs had blacklisted a total of 73,371 defaulters. Over the past four months, 14,775 new entries were added to the blacklist, reflecting a substantial surge in blacklisting incidents, particularly over the last five years.