KATHMANDU: Bankers have expressed concerns about a provision in the Investment Facilitation Bill, which requires banks to sell mortgaged properties within three years if they are not auctioned. They argue that this could lower land prices and hinder loan recovery.

Sudesh Khaling, CEO of Everest Bank, noted an increasing trend among large borrowers to avoid repaying loans by resorting to litigation, which often takes a long time to resolve. "With such cases dragging on, it is challenging to complete auctions within the government's timeframe," he said. Khaling added that some borrowers believe they do not need to repay loans from banks and financial institutions, leading to increased litigation and financial strain on banks.

Due to difficulties in loan recovery, banks have been forced to invest in non-banking assets when they cannot sell mortgaged properties. The Land Revenue Office's restrictions on selling such acquired land led the government to amend the Land Act through an ordinance. This ordinance, approved by Parliament, was subsequently replaced with a bill presented to the House of Representatives.

The bill amending the land-related act mandates that banks and financial institutions must sell unsold mortgaged properties within three years if they exceed a specified limit. "When auctioning land mortgaged for loan security, banks, financial institutions, or cooperatives must sell such land within three years of acquisition if they exceed the limit," the bill states.

This provision will impact banks with significant non-banking assets. Bankers argue that forced sales within a short timeframe will lower the market value of the land, depriving banks of potential benefits. If the land is not sold within the specified period, the bill requires approval from the government to proceed with the sale.

Bankers have questioned the necessity of government approval. "The requirement for government 'approval' is unclear; we don't understand the intent," CEO Khaling remarked.

Former banker Bhuvan Dahal argued that banks and financial institutions should not face difficulties due to the ordinance and its replacement bill, which mandate the sale of unsold securities beyond the auction limit. He acknowledged that, under normal circumstances, auctions could be completed within three years, but litigation or falling land prices could prevent this. "The three-year period should exclude litigation time," he said, suggesting banks be granted additional time when necessary.

Conversely, government officials argue that the provision aims to curb random auctions that have adversely affected many debtors. A senior official involved in drafting the bill noted that some major commercial banks have been unfairly pressuring borrowers. "This measure is intended to prevent arbitrary auction notices from banks," the official said.

In the bill to amend some Nepal Acts related to investment facilitation, presented by Minister for Industry, Commerce, and Supplies Damodar Bhandari, the Land Act, 2021, has been revised. It now allows industries, establishments, companies, or organizations needing land beyond the prescribed limit to apply for government approval within one year of the bill's enactment. Minister Bhandari emphasized that the bill aims to facilitate investment by easing land acquisition, supporting the establishment of natural industries in forest areas, and allowing mortgage arrangements to increase industry capacity by up to 50 percent beyond the limit with government approval.