KATHMANDU, May 6: Banks and financial institutions (BFIs) now get respite from the obligation of selling their non-banking assets within three years, with the Supreme Court (SC) issuing its verdict to annul the provision.
A five-member Constitutional Bench led by Acting Chief Justice Sapana Malla Pradhan along with Justices Kumar Regmi, Hari Prasad Phuyal, Manoj Kumar Sharma and Nahakul Subedi issued the order in line on Monday. Hearing the writ petition filed by advocate Sagar Adhikari on behalf of the Confederation of Banks and Financial Institutions Nepal (CBFIN), the Constitutional Bench of the Supreme Court ruled that the provision is inconsistent with the constitution and ordered the issuance of the writ petition.
SC issues interim order easing BFIs’ ability to sell their non-...
As of now, the BFIs have been compelled to sell their non-banking assets within three years instead of auctioning them for collateral during the process of loan recovery. The apex court has also repealed the legal provision that required government permission if the sale was not made within the stipulated time period.
Earlier in December, the SC had issued an interim order against the government for not implementing the rule. Non-banking assets are the fixed properties kept as collateral by borrowers, which are taken to auction by banks in case the loans convert into bad debt.
Banks can write off the provisioning amount of bad debts by the amount received from the auctioned collateral. Increased non-banking assets indicate that banks are facing risks in asset management, with a rising amount of provisioning against bad debts.
According to bankers, the SC’s verdict will provide some respite to the BFIs, which have been witnessing a piling up of non-banking assets in recent times due to increasing cases of non-payment of issued loans. A report of Nepal Rastra Bank shows that the non-banking assets of the BFIs soared to Rs 50.55 billion as of the last fiscal year (FY), while those of commercial banks alone have crossed Rs 42.11 billion. At present, the BFIs are having such assets worth Rs 51.33 billion.
