Fiscal Nepal
First Business News Portal in English from Nepal
KATHMANDU: Nepal Rastra Bank (NRB) has reduced the time required to upgrade non-performing loans (NPLs), allowing banks and financial institutions to reclassify such loans as performing after three months of regular repayment.
Under the revised provision, loans that were previously classified as substandard, doubtful, or bad can now be upgraded three months after the borrower clears all overdue principal and interest and maintains regular debt servicing. Earlier, banks were required to keep such loans under close monitoring for six months before upgrading them to performing status.
The change has been incorporated into the Unified Directive issued by NRB to banks and financial institutions on Friday.
According to the central bank, financial institutions must continue to recognize losses on loans classified as substandard, doubtful, and bad until the entire overdue amount is fully repaid and regular recovery is sustained for at least three months. Only after meeting these conditions can such loans be upgraded.
The revision is expected to provide regulatory relief to banks at a time when the financial sector is dealing with elevated levels of stressed assets amid a slowdown in credit growth and economic activity. By shortening the upgradation period, banks may see faster improvement in asset quality indicators once borrowers resume regular repayments.
In addition, NRB has announced that commercial banks will not be required to maintain any counter-cyclical buffer (CCyB) provision in the fiscal year 2082/83. The counter-cyclical buffer rate for the period has been set at zero percent, according to the directive.
The central bank periodically reviews prudential regulations to balance financial stability with credit flow to the economy. The latest adjustments signal a more accommodative regulatory stance aimed at supporting banks’ balance sheets and facilitating credit recovery as economic conditions gradually improve.
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