January 4: Nepal Rastra Bank (NRB) is preparing to monitor the debtors who take large amount of loans from banks and financial institutions. The central bank is about to issue a procedure to monitor large amount of loans as the entire financial system will be affected if such large loans turn into bad loans.

The central bank, in its monetary policy for the current fiscal year, has announced to develop the Large Exposure Framework to identify the large-scale borrowers from banks and financial institutions (BFIs).

In addition, monitoring of the credits availed by the big borrowers from the banking system will be made more effective. The existing single obligor limit will be reviewed, states the monetary policy for the FY 2022/23.

Narayan Prasad Pokharel, deputy spokesperson of NRB, said that the procedures are being prepared according to the announcement made in the monetary policy.

“NRB has announced that a procedure will be drafted for the identification of big debtors and their regulation. The draft of the procedure will be revealed only after taking suggestions from all stakeholders,” he said.

In 2014, the 'Basel Committee on Banking Supervision (BCBS)' had set a high-risk standard to reduce the risk of loans taken from banks by individuals or groups. The standard was set after assessing that if a loan is at risk, it will affect the entire system.

The BCBS has categorized debtors who borrow more than 10 percent of the primary capital of the bank in the high-risk group. Likewise, for a single person or group, the criteria is that no more than 25 percent of the bank's primary capital fund should be invested in loans.

Eight years after BCBS introduced the standards, preparations are being made to implement it in Nepal. As per the information provided by NRB, the central bank will prepare the framework based on the standards of the BCBS.

In order to reduce big risks in the financial sector, NRB is currently implementing a single customer credit limit and has been monitoring the details of large-scale borrowers of the banks on a quarterly basis.

At present, NRB has set a limit of loans to a single customer, firm, company or a group of customers with a mutual relationship.

Similarly, the central bank has been collecting the details of the debtors who have used loans of more than Rs 50 million from commercial banks and Rs 20 million from development banks and finance companies on a quarterly basis for monitoring the large-scale borrowers.