NewBiz Report

KATHMANDU, August 1

Construction entrepreneurs, who have been among the hardest hit by the economic slowdown, have been granted an additional five months to repay their bank loans.

For the implementation of its monetary policy, Nepal Rastra Bank (NRB) on Wednesday issued instructions to banks to extend the loan repayment deadline for contractors struggling under current circumstances by five months until mid-December this year.

NRB has stipulated that interest accrued during this extension period will not be subject to further interest or penalties.

However, the instructions specify that banks may impose penalty interest if the loan interest is not paid within the exemption period.

The central bank had announced these concessions to contractors in its monetary policy.

The National Statistics Office has already predicted that the construction sector would grow negatively by 2.07 percent in the last fiscal year 2023/24, which ended on July 15.

Construction entrepreneurs have also been affected by delays in government payments, with over Rs 40 billion in arrears still outstanding for completed projects. 

Both contractors and banks have been talking about the slowdown in the construction sector.

In addition, NRB has eased regulations regarding the blacklisting of construction entrepreneurs. According to the new guidelines, NRB has instructed that construction business organisations should not be blacklisted until mid-December 2024 solely due to dishonourable cheques.

In line with the monetary policy announcement, NRB has also extended the deadline for implementing the working capital loan guidelines by one year. Banks will now have until mid-July 2025 to set limits on working capital loans in accordance with the guidelines.

Flexible Provisions for Specialized Investment Funds

NRB has also introduced flexibility in the blacklisting provisions for specialised investment funds, such as private equity and venture capital. 

Small and medium enterprises with 50 percent or less share investment from domestic private equity and venture capital funds have been instructed not to be blacklisted solely because one company has been blacklisted.

NRB Executive Director Guru Paudel said that those companies were exempted from blacklisting provisions to encourage specialised investment. 

The Securities Board of Nepal (SEBON) has been approving the operation of private equity and venture capital funds under the 'Specialized Investment Fund Regulations, 2075'. 

Till date, more than a dozen companies have received permission to operate these funds.

The Chief Executive Officer of NRN Fund, Analraj Bhattarai, mentioned that this arrangement will encourage specialised investment institutions. Bhattarai said that since private equity and venture capital typically invest in multiple companies, blacklisting based on the status of a single company was problematic.