A. We recommend that NRB relaxes the monthly cash withdrawal limit from 2% to 10% in working capital guidelines, as the current limit is deemed impractical.
B. We suggest that NRB establishes different interest rates for lending to the productive and non-productive sectors. For the productive sector, we recommend setting a minimum premium percentage through Directives, accompanied by a clear definition of what constitutes the productive sector.
C. We request that NRB grants development banks the authority to independently issue LC (Letter of Credit) and BG (Bank Guarantee) businesses without mandatory coordination with commercial banks, as outlined in para 15 of directive no 2 of Unified NRB directives.
D. We recommend that NRB reviews the risk weights of 150% and 200% used in calculating the risk-weighted exposure for credit risk, considering the changed market conditions compared to the COVID-19 period.
E. We advise NRB to revise the base rate calculation mechanism or implement the Marginal Cost of Lending Rate (MCLR) to ensure the proper implementation of monetary policy. The current base rate calculation system lacks sensitivity towards changes in bank rate or repo rate, while MCLR mitigates interest rate risks associated with credit exposure for banks.
F. We advocate for reinstating the erstwhile provision of publishing the photo of defaulters in the 35-day notice. This measure is necessary as borrowers tend to dismiss the notice casually when their photos are not published in newspapers, causing difficulties for banks in the recovery process.
G. We encourage NRB to reconsider the period of six months and the criteria for the Doubtful category in publishing the 35-day notice/auction process for term loans. There may be instances of mis-utilization, fraud, or urgent cases warranting immediate publication of the 35-day public notice. NRB should provide appropriate provisions to address such cases, considering the provisions in the Banking and Financial Institutions Act (BAFIA) and the associated provisioning requirements.
H. We suggest including a comprehensive recovery framework for margin lending loans against ordinary shares as well as promoter shares in NRB directives, ensuring clarity and uniformity across the industry.
I. We recommend that NRB prescribes a standardized format for determining the Permanent Working Capital Nature (PWCN) and Fluctuating Working Capital Nature (FWCN) assets/loans to address inconsistencies in the calculation methods used by different institutions.
J. We urge NRB to collaborate with the Inland Revenue Department (IRD) for verification of the projected sales figures declared in the Income Tax Statements (ITS). The current practice of ITS submission is considered irrelevant, and coordination with IRD would enhance accuracy and reliability.
K. In case of retail loans, the basis for determination of the equity is to be clearly mentioned by the NRB in its directives. Till now, the equity has been declared arbitrarily.
L. We emphasize the need for clear directives specifying the treatment of accrued interest balances in case of rescheduling/restructuring of loans to ensure consistency and clarity in the process.
M. We recommend that NRB collaborates with industry stakeholders to develop standardized documentation and processes for loan syndication and consortium lending. This would streamline the lending process, improve efficiency, and facilitate larger-scale financing for projects and businesses.
N. We recommend correcting the fiscal year in the title of the Unified Directives Annexure to reflect 2079 .We request to provide official English translations of NRB directives to facilitate better understanding and compliance.
O. We suggest that NRB makes provisions for the supervision of subsidized loans post disbursement as the strengthened oversight will help prevent misuse and help the bank's cause in the long run.
P. We propose that NRB introduces clear guidelines regarding projected sales figures in working capital guidelines to prevent manipulation and ensure accuracy. While projected sales can generally be up to 1.5 times to 2 times the annualized sales, exceptions may be allowed for special conditions that justify significant deviations, such as seasonal sales or contract-based businesses.
Q. As a development bank, we propose that NRB reconsiders the unconditional nature of claim amounts in the Credit Supply Guarantee.
R. We suggest that NRB establishes clear provisions, through its directives, for the assessment of the net worth of borrowers, promoters, directors, and personal guarantors to enhance the credibility and reliability of the declared net worth.
S. We propose that NRB incorporates credit ratings for loans above 100 million and directs their review during the credit appraisal stage itself, ensuring proper risk assessment and timely decision-making.
T. We recommend that NRB revises the loan loss provisioning for substandard loans, reducing it below 25% to align with industry requirements and facilitate the effective management of credit risks.
U. We suggest that NRB encourages banks to adopt technological solutions, such as credit scoring models, data analytics, and artificial intelligence, to streamline credit appraisal processes, improve efficiency, and enhance the accuracy of credit decisions.
V. We suggest that NRB mandates the settlement of loans given during the COVID-19 period, such as Customer Protection loans. Additionally, strict provisioning requirements should be established for such loans, as the relaxation given during the crisis cannot prolong indefinitely.
W. We recommend that NRB mandates yearly monitoring and review of term loans, including obtaining yearly audit reports, updated financials, updated Credit Information Bureau (CIC) reports, and updated Borrower's Stock Valuation Report (BSVR). This proactive approach ensures loan conditions are met and allows for appropriate provisioning if loan conditions are not fulfilled or updated.
X. We recommend that NRB should establish guidelines for the use of technology and digital solutions in banking operations, including online account opening, digital payments, and electronic documentation. In particular, NRB should make a policy for removing the transaction fees levied on the electronic transactions/transfers. This would promote digital transactions and support the development of a more efficient and customer-centric banking ecosystem.
Y. We propose that NRB should review and update the guidelines for loan classification and provisioning periodically to align with international best practices and adapt to changing market conditions. This would enhance the accuracy and consistency of loan classification and provisioning practices across the banking industry.
Z. We suggest NRB provides a framework for the establishment of a common platform of public sector banks, commercial banks in collaboration with ICAN for obtaining standardized and accurate balance confirmations, promoting transparency, efficiency, and reducing auditing costs. Recently, this practice has been introduced in India.
