August 30: Stakeholders have expressed concerns that the Working Capital Loan Guidelines 2079 issued by the Nepal Rastra Bank (NRB) would push the private sector on the brink of crisis.
Speaking at an interaction organized jointly by Madhes chapter of the Federation of Nepalese Chamber of Commerce and Industry (FNCCI) and the Economic Reporters Association in Birgunj on Monday, the stakeholders said that the new guidelines on working capital loan have added further burden to the private sector that is still struggling due to the impact of coronavirus pandemic.
President of the Madhes chapter of FNCCI Ganesh Prasad Lath claimed that the limit on working capital loan will likely increase the operating cost of business organisations. The private sector is worried after the central bank recently issued the guidelines that have limited their access to working capital loan to 20 to 40 percent of the company’s annual turnover.
“The central bank has ignored the possible risks that the average businessmen might face in the name of controlling economic activities and therefore implementation of this provision might cause serious problems,” said Lath.
He argued that the government has adopted a policy to curb economic activities at a time when it has increased its revenue collection target. Such a contradictory move has only created more confusion, says Lath.
As per the new guidelines, the central bank has capped the limit on working capital loan to 20 in case of a company whose annual transaction is less than Rs 20 million. However, they can avail up to 40 percent loan under special circumstances. In case of a company whose annual transaction is over Rs 20 million, they can avail 25 percent loan.
Chairperson of Birgunj Bankers’ Group Rohini Acharya said that the central bank tightened the noose on working capital loan after it was found that such loans were spent on unproductive sector.
“Financial crisis has escalated after the companies started taking working capital loans and used them for the purchase of housing and lands,” said Acharya.
Meanwhile, chairman of Birgunj Chamber of Commerce Subodh Kumar Gupta said that the new guidelines will likely shut down many businesses.
He said that the government has formulated many policies to recover loans from the industrialists and businessmen but there isn’t much laws that ensure business community from recovering their money from the market.
“We have become tired of raising the issue of Credit Act. But the government is not serious about this issue. It has never paid attention to the problems of the business community,” said Gupta.
He claimed that a business cycle in import business requires at least one year because it takes two to three months for importing goods and then the goods get stored in warehouse before they are sold.
“Now we have to either stop importing goods or stop storing goods in warehouses. It seems that the new guidelines have been issued to discourage business activities,” said Gupta.
Chairman of Nepal India Economic Forum Ashok Kumar Temani said that the new guidelines have failed to address the requirements of business cycle. According to him, the guidelines issued by Nepal Rastra Bank focuses on only one aspect of economy and therefore it will have negative impact in overall economy.
Pradeep Kedia, former president of Birgunj chapter of FNCCI, said that it will be impossible for them to recover the loans given earlier if the banks tighten credit flow. He said that the banking system is not free from flaws and accused the banks of not monitoring the loans properly.
“This problem has surfaced because the banks issue loans by looking at the background of the people seeking loans rather than the details of the project. They provide loans to well off people with blind eyes but they are reluctant to provide loans to the general public even if they present proposals of good projects,” said Kedia.
Entrepreneur Prakash Khandelwal said that the rules introduced in the banking sector one after another have created an environment in which big business is not possible.
