How are the loans/advances classified in Nepal? Explain in detail.
Nepal Rastra Bank, a central banking authority have clearly mentioned the classification of loans/advances in unified directives 2075 which is listed in directive no. 2/075. Entire loan and advances extended by a licensed institution (it means BFIs licensed under its authority) have to be classified as follows based on expiry of the deadline of repayment of the principal and interest of such loans/advances:
(Source of image is internet)
A. Performing Loan: Performing loan includes pass and watch list loan in following:
1. Pass:
a. Loans/advances which have not overdue and which are overdue by a period up to one month,
b. Loans/advances of fixed receipts,
c. Loans/advances of government of Nepal securities and loans/advances made against the collateral of Nepal Rastra Bank bonds,
d. Loans/advances extended in maximum up to 10 lakh against the collateral of gold and silver.
Provided that the cases of the loans/advances against the fixed receipts or Government of Nepal securities Securities or Nepal Rastra bond as the collateral and advances up to 10 lakh against collateral of gold and silver, such loans and advances shall also have to be classified in accordance on expiry of the deadline of repayment.
2. Watch List:
a. Loans/advances which are overdue by a period from one month to three months,
b. Temporarily extension of payment of loan without re-registration,
c. Loan on debtor who have been classified in non-performing loan from any bank and financial institution,
d. Organization that is paying loan/interest continuously but self is not in profit. This is not apply in project which are under constructions,
e. Loans amount of Rs. 100 million, or more which is not been turned co-financing loan on amount financed by multiple banks,
f. The direction given by the bank on the basis of weak cash flow and weak project operation as a result of inspection from bank.
B. Non-Performing loan: Non-performing loan includes substandard, doubtful, loan and loan referred to clause no.8 in following:
1. Substandard loans/advances: Loans/advances which are overdue by a period of three months to maximum period of six months.
2. Doubtful: Loans/advances which are overdue from six months to a maximum period of one year.
3. Loss: Loans/advances which are overdue by a period of more than one year.
4. Loans referred to in clause no. 8 relating to provision of rescheduling and restructuring loan.
Now lets see what clause no.8 relating to provision of rescheduling and restructuring loan is as follow:
1. In case a licensed institution is convinced on the following bases stated in the written action plan submitted by the debtor, it may rescheduled or retract the loan. The bases stated for rescheduling and restructuring should be mentioned clearly in each loan file.
a. Evidences showing that documents relating to loans and security are adequate;
b. Bases on which the licensed institution is convinced of the possibility that the rescheduled or restructured loans would be recovered;
c. In addition to submission of written plan of actions for rescheduling and restructuring loans at least 25 per cent of the interest due to be paid until the date of rescheduling or restructuring of such loan has been paid.
2. While restructuring or restructuring the loans to the industries which have been published in Nepal government, Nepal gazette for the sick industries re-establishment and appropriate solution this bank shall refer to financial support course of action, 2070 (course of action- 2.1) where it should made provision of 25 per cent of loan loss.
3. Description of the loans classified pursuant to classes (1) and (2) has to be separately prepared.
Note:For this purpose, "Rescheduling" means the process of extending the time limit of repayment of the loan availed by the customer.
"Restructuring" means the process of changing the nature or terms and condition of altering the restrictions on or changing the time limit if the credit facilities.
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