KATHMANDU, June 28: Bankers have urged the Nepal Rastra Bank (NRB) to allow Banks and Financial Institutions (BFIs) to generate income by leasing or renting out their non-banking assets (NBAs), citing a sharp increase in such assets and the inability to sell them amid the prolonged economic slowdown.
Under existing NRB regulations, BFIs are not allowed to use fixed assets acquired after confiscating collateral from loan defaulters for revenue-generating purposes. In this regard, the Nepal Bankers' Association (NBA) has urged the central bank to amend the existing provisions.
Bankers have also criticised the NRB for maintaining stringent loan-loss provisioning requirements. They argue that the central bank has yet to implement its own commitment made in the Monetary Policy for FY2025/26, which promised to review the existing loan-loss provisioning framework and loan classification system.
Revised interest rate corridor system introduced
According to NRB records, the value of non-banking assets held by commercial banks increased by Rs 7.50 billion, or 19.51 percent, in the first 10 months of the current fiscal year. The total value of these non-earning assets has risen to Rs 45.99 billion from Rs 38.48 billion during the period.
Non-banking assets are properties pledged as collateral by borrowers that banks acquire after loan defaults. Banks usually dispose of these properties through auctions to recover outstanding loans and write back provisions made against bad debts.
The growing volume of non-banking assets reflects BFIs' inability to recover outstanding loans and interest payments from borrowers. As these assets do not generate income, they remain idle and limit banks' ability to deploy funds for productive lending.
In recent years, BFIs have witnessed a steady rise in non-banking assets amid the economic slowdown. Although interest rates have declined, credit demand has remained weak, while the recovery of overdue loans has continued to pose a challenge.
Bankers have also urged the central bank to revise the methodology for calculating the base interest rate, arguing that the current formula does not reflect market realities. In addition, they have called on the NRB to reduce the mandatory deprived sector lending requirement from 5 percent to 4 percent.
The NBA has further complained that banks are not allowed to revise the premium rate on loans even when borrowers' risk profiles change over time. According to bankers, BFIs should be allowed to adjust the premium rate based on changes in borrowers' credit risk.
