August 21: Nepal Rastra Bank has notified businesses and industries that they will need to apply within 45 days to become a recipient of the refinancing facility, initiated to provide relief to the debtors affected by the coronavirus pandemic. This process, however, will likely be affected due to the prohibitory order imposed in the various parts of the country.

Nepal Rastra Bank had recently demanded an application from banks and financial institutions (BFIs) along with a list of customers that require refinancing facility within 45 days. Nepal Rastra Bank has prepared to settle the issue of refinancing soon based on the list of customers that the commercial banks, development banks and finance companies submit. Preparations had been made to ensure the businesses got refinancing within two months.  However, a prohibitory order has been imposed in various areas of the nation due to coronavirus pandemic. The time period for this order is different for different areas with chances of extension. Banks may need more time to prepare the list of debtors for refinancing if the period of the prohibitory order is extended. Only the necessary banking activities are in operation during this prohibitory period and it will also not be possible for the industrialists and businessmen to visit the banks in this situation.

Chairman of the Nepal Bankers' Association Bhuvan Kumar Dahal says that they could not start preparing for the application at this moment because of the prohibitory order issued by the government.

“We will provide refinancing facility to the clients affected by COVID as soon as Nepal Rastra Bank makes the Refinancing Fund available to us after our application,” he said. Bankers stated that refinancing will be available within two months if the prohibitory order does not get prolonged.

Nepal Rastra Bank has notified banks and financial institutions to apply for refinancing between August 17 to September 30.

The banks will only be able to demand a maximum of 25 percent of their capital as the refinancing amount. The debtor must have at least a year left in their repayment period to be eligible for this. Debtors that have a loan from more than one bank will only be considered for one bank to avoid any repetitions.

According to the NRB, the banks will have to demand at least 70 percent of the total amount applied for refinancing under the refinancing of small, cottage and micro enterprises. Banks will also have to select at least five customers/ debtors from each branch while picking the loans to be applied for refinancing. Nepal Rastra Bank has stated that the applications that do not follow the required process or aren’t submitted within the deadline will not be accepted.

According to Gunakar Bhatta, the spokesperson for Nepal Rastra Bank, the banks have to apply along with list of customers within the stipulated time in the Refinancing Work Procedure-2077. According to him, the application for refinancing was announced to the banks for the reduction of interest costs for those affected by COVID and for a speedy implementation of refinancing in the economy.

Adding More Liquidity

The liquidity in the market will increase greatly once Nepal Rastra Bank provides banks with a lumpsum of refinancing amount. The market currently already has a excess liquidity of Rs 200 billion. Liquidity in banks will further increase when they will be provided with refinancing amount. The banks will have to provide the COVID-19 affected debtors the loan at 5 percent interest rate once they receive the refinancing amount from the central bank.

NRB Spokesperson Bhatta said that the amount received for refinancing will provide an additional liquidity to the banks. “There is no demand in the market even if the banks are able to use the refinancing fund. But their interest income will decrease. Debts are not flowing. Therefore, liquidity will increase in the market,” he said. Banks do not seem excited about the refinancing because their liquidity will increase but their interest income will decrease when the refinancing fund is distributed. The interest income will decrease as they will only receive 5 percent interest rate when they used to receive 12 percent from the debtors.

Ganesh Pokharel, the chief executive officer of Citizens Bank pointed out that the refinancing facility is a national agenda and that it should be made available soon to help the debtors affected by COVID-19 even though the liquidity in market will increase because of it.

Saroj Tuladhar, the president of Nepal Financial Institutions’ Association said the finance companies have also started to collect data of the debtors. According to him, the list of the debtors will be prepared within 5-6 days. “We will implement this as soon as the we get the approval after submitting it to Rastra Bank,” he said.

The period of the lumpsum refinancing will be a year at most and will not be renewed. However, the period of refinancing will be a year at most for debtors who are extremely affected by coronavirus, and six months for those who are mildly affected by coronavrius. Nepal Rastra Bank informed that this refinancing is renewable. The upper limit for such financing is Rs 50 million.  Small, cottage, and micro enterprises refinancing and general refinancing debtors will receive the refinancing at 5 percent interest rate. Special refinancing will be provided to the debtors at 3 percent interest rate.

The refinancing work procedure under the monetary policy of the current fiscal year will provide 70 percent of the refinancing fund through commercial banks, development banks and finance companies, and 10 percent through the microfinance companies. Nepal Rastra Bank will distribute 20 percent of the refinancing through their evaluation.