June 1: The size of interest receivable of banks and financial institutions (BFIs) are increasing annually. According to the NRB statistics, the interest receivable of BFIs has reached Rs 43.77 billion till mid-March of current FY. The interest receivables that had been transferred to interest suspense account due to non-payment have increased by 9 percent to Rs 30 billion in the FY 2070/71. It has further increased by 3 percent to Rs 31 billion in the FY 2071/72. However, the interest suspense account as increased by 40 percent to Rs 44 billion, within the first nine months of the current FY 2072/73.

The increase in suspense interest account of BFIs may affect the profit earned in the case of decrease in interest income, say experts. “Profit will not be affected if interest income increases along with the suspense interest receivables. But if the interest income is declining and suspense interest account is increasing then definitely profit will be affected,” says Shailendra Upreti Chartered Accountant.

The interest income of the BFIs has decreased by 36 percent to 84 billion in the eight months of current FY 2072/73 in compare to FY 2071/72. However, bankers are positive on improvement in interest income till the end of current FY. The bankers also expect to recover suspense interest within the period.

In such circumstances, the bankers see possible additional increase in profit. As per the NRB directive, suspense interest and interest receivable from investment in government bonds are not required to keep as risky liabilities as other interest receivables. Due to the mechanism, institutions are not required to keep separate provision of possible losses for suspense interest that has facilitated BFIs in adverse conditions.

According to the bankers, decrease in interest income can be attributed to contraction in investment due to the devastating earthquake and the border blockade. In such circumstances, recovery of loans and interest had become problematic which has resulted in increasing in suspense interest account. Rastriya Banijya Bank, Prabhu Bank and Agricultural Bank are some of the banks that have the highest suspense interest in 8 months of the current FY. These banks have suspense interest of Rs 10.41 billon, 2.31 billion and 2.03 billion respectively.

What is in legal mechanism?

According to the integrate direction of NRB, if interest receivable from loan is received in cash, then only it can be shown in income. But if the matured interest is not received in cash, till then it is kept in suspense interest account. Similarly, accrued interests of bad debt are also kept in suspense account.