October 19: Nepal Rastra Bank has implemented the Working Capital Loan Guidelines despite protest from the business community. The central bank had issued the Working Capital Loan Guidelines 2079 about two months ago in order to fix a limit on working capital loan.

As per the new guidelines, the central bank has capped the limit on working capital loan of a company whose annual transaction is less than Rs 20 million to 20 percent of the total transaction. 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. 

The private sector organsations including the Federation of Nepalese Chamber of Commerce and Industry (FNCCI), Confederation of Nepalese Industries (CNI) and Nepal Chamber of Commerce (NCC) as well as industrialists from across the country had been protesting against the move. They had urged the central bank not to implement the new guidelines and had been requesting amendment. However, the NRB started implementing the new provision from Tuesday disregarding the suggestions from the private sector.

The central bank had prepared a draft of the new guidelines about one year ago and had also asked for suggestions from the business community. NRB issued the guidelines on August 23 and directed banks and financial institutions to implement it from October 18.

Stakeholders have expressed concerns that the Working Capital Loan Guidelines 2079 issued by the NRB would push the private sector on the brink of crisis.

The business community and industrialists argue 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.

Handing a memorandum to Acting Governor of Nepal Rastra Bank Dr Neelam  Dhungana Timsina on Monday, the FNCCI urged the central bank not to implement the guidelines immediately because the private sector was facing crisis at present. They urged the central bank to implement the guidelines when the environment becomes conducive to run businesses.

‘The economy is under external and internal pressure. Therefore, it would not be appropriate to implement the guidelines on working capital loan at the moment,” reads the memo submitted by FNCCI.

“The guidelines can be implemented in a phase-wise manner once the economy returns back on track.”

Despite the protest from the private sector, NRB has made it clear that it will not budge from its decision. NRB Governor Maha Prasad Adhikari has been maintaining that the guidelines have been implemented after a long preparation and includes suggestions from the business community. Therefore, the private sector has no right to object against the guidelines now, says Adhikari.

Governor Adhikari had earlier defended the central bank’s move to amend the Working Capital Loan Guidelines arguing that the new guidelines were introduced to control “over financing.”

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,” Adhikari said during a programme in September, adding, “We were forced to control the loan after businessmen started using it for other purposes than it was intended for.”