After failing to recover significant sums of money from their problematic loans, banks and financial institutions (BFIs) in Nepal have begun to turn to the Debt Recovery Tribunal (DRT) for assistance.
According to the DRT’s data, during the first half of the current fiscal year, the BFIs brought 386 complaints against their borrowers. Of these, 15 were filed by finance businesses, 40 were related to development banks, and 331 were related to commercial banks.
The majority of the lawsuits involved non-recovery from construction firms. Among them were supermarkets, jewelry stores, gas stations, hotels, farms, vacations, banquets, and other establishments.
More than Rs 5.12 billion has been demanded by the financial institutions from their debtors. Commercial banks alone claimed more than Rs 4.84 billion of the total.
The head of the Nepal Bankers’ Association, Santosh Koirala, stated that they had to turn to the DRT for assistance after they were unable to recoup their loans because of several issues. Speaking at a program on Tuesday, Koirala stated, “At a time when the percentage of bad debts has been rising, we are seeing resistance from the local levels when we try to get recommendations for ownership transfers and non-cooperation from the parties involved.”
The DRT is a court that was established primarily to help BFIs collect bad debts that they were unable to do so on their own. Recovering bad debts is essential to maintaining a financial institution’s sound financial standing.
According to the legislation, the BFIs have four years from the moment the loans are turned into bad debts to bring legal action against the loan defaulters. However, bankers claim that because to the increasing number of bad debt cases, BFIs have begun bringing cases before the DRT, even when the loans are classified as substandard.
Banks classify borrowings as sub-standard, questionable, and bad loans based on the length of time that the loans are past due. Loans with principal and interest payments due within six months are considered poor loans. Uncertain loans are those whose payments are past due for six months to a year, whereas bad loans have past-due periods longer than a year.
Non-performing loans (NPLs) have been rising for BFIs recently as a result of an increase in non-recovery incidences. The commercial banks’ financial reports showed that their non-performing loans (NPLs) increased to an average of 4.33 percent, up from 3.66 percent at the end of the previous fiscal year. One entity’s non-performing loan (NPL) has increased to 6.96 percent.
Similarly, the average NPL ratio for development banks is 5.36 percent, compared to 8.13 percent for finance businesses.
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