September 4: Nepal Rastra Bank’s Governor Maha Prasad Adhikari has defended the central bank’s move to amend the Working Capital Loan Guidelines arguing that the new guidelines were introduced to control “over financing.”

The NRB Governor made such remark while addressing the 24th annual general assembly of the Society of Economic Journalists Nepal (SEJON).   His remark comes at a time when the industrialists have been protesting against the new guidelines on working capital loan.

Adhikari argued that the new provisions were introduced because the businessmen were using loans provided to meet their day-to-day expenses were spent on other purposes.

“There has been over financing in the name of banking capital,” said Adhikari, adding, “We were forced to control the loan after businessmen started using it for other purposes than it was intended for.”

Adhikari said that the guidelines were being prepared since he was the deputy governor of NRB and the move has been praised by retired CEOs who spent considerable time in the banking sector.

He said that the business community did not reveal the entire picture while blaming the NRB move.

“The businessmen are not speaking the right thing about the guidelines. They have a tendency to misuse the loan. If they improve in this front, the market will improve,” said Adhikari.

For instance, Adhikari said if rice dealers are given excessive amount of loan as working capital they will purchase additional stock of rice. In doing so, the stock of rice gets expired and it is later sold after reprocessing, Adhikari said referring to the malpractice seen in this sector.

On the other hand, businessmen and industrialists say that the new guidelines on working capital loan have discouraged them.

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.