KATHMANDU, June 25: Nepal Rastra Bank (NRB) has tightened provisions governing the capitalization of interest on loans extended to long-term projects during their moratorium period.
Through an amendment to the Unified Directives issued on Wednesday, the central bank has allowed Banks and Financial Institutions (BFIs) to capitalize interest accrued on project loans during the moratorium period until the commencement of commercial production and the generation of cash flows.
Revised interest rate corridor system introduced
However, the revised provision applies only to long-term projects that have not undergone restructuring or rescheduling of their credit facilities. If the moratorium period is extended beyond the originally approved terms, the loan will be classified as restructured, requiring BFIs to maintain a minimum loan-loss provision of 25 percent against such exposure.
Previously, BFIs were not allowed to capitalize interest accumulated during the moratorium period, and such interest had to be accounted for separately from the principal loan amount.
The NRB has also introduced a special arrangement for hydropower projects that have completed construction but are unable to operate at full capacity due to delays in transmission line infrastructure. Under the new provision, BFIs may partially capitalize interest to the extent that it is not covered by the project's net sales proceeds until the transmission line becomes operational.
