NRB backtracking on its decision to ban board members, CEOs from getting loans
RUPAK D SHARMA
KATHMANDU, Aug 28: Nepal Rastra Bank (NRB), the banking sector regulator, is backtracking on its previous decision on barring board members, chief executives and high-ranking officials of banks and financial institutions (BFIs) from acquiring or renewing loans that could be used for commercial purpose.
Under the new provision, which the central bank is soon introducing, board directors, CEOs and management-level employees can fetch up to Rs 10 million in personal loan, apart from loans such as education, consumer, hire purchase and home, a high-ranking NRB official told Republica preferring anonymity as he is not authorized to talk to media.
If board members - most of whom are investors in Nepal´s case - want more credit for business purpose, they can get it in the name of the company they are promoting, the source informed. “But this particular provision will not apply for chief executives and management-level staff members of BFIs,” the source said, adding, “A directive comprising the latest changes will be issued in a few days.”
The central bank, on July 13, came up with a directive that prevented board directors, CEOs and management-level employees of BFIs from acquiring any loans, other than education, consumer, hire purchase and home, from any financial institution in the country. The directive also barred banks and financial institutions from renewing such loans.
The instruction was given after the regulator detected involvement of these people in business activities, which often created conflict of interest due to their confusing dual role of lender and borrower.
At the same time, the central bank also detected gross misuse of loans, like overdraft, extended to these people, who often used influence to acquire such credit.
An NRB official had earlier told Republica that a huge chunk of this money was injected into the real estate sector, which was booming until two years ago. But after the realty business stagnated, many banks faced problems in recouping these loans, raising chances of these credit turning into bad debt.
Although the bold instruction extended by the regulator in July was praised by those anticipating drastic reforms in the banking sector, bankers and promoters of BFIs had continued to exert pressure on the central bank to revisit its decision, as it forced them to either pay back the due credit in time or leave their posts in BFIs.
“The central bank has now realized that the directive was a bit too harsh on board directors, CEOs and high-ranking employees of BFIs, as it prevented them from acquiring credit to fulfill family obligations like holding marriage events,” the NRB source said. “We hope the ceiling of Rs 10 million on personal loans would give them some breathing space and not feel dejected for joining BFIs.”