December 17, 2020 | Investopaper
Nepal Rastra Bank has directed to impose additional conditions for providing loan on share pledge. For this, the central bank has amended the directive issued for Class A, B and C banks and financial institutions. Now, the BFIs cannot provide loans on shares of institutions that have been in loss for the last three consecutive years, those which have not been in operation for one year, those which have not held a general meeting for three years and those whose shares have not traded for at least 250 days.
Earlier, NRB had instructed the banks and financial institutions not to provide loan on share collateral of those institutions that have been declared problematic or have not maintained capital ratio as per the instructions, institutions with net worth negative, institutions that have been removed from Nepse listing and institutions that have not performed the final audit even after one year.
NRB has also directed to provide for the analysis of basic indices such as price-to-earnings ratio, price to book value and dividend payout ratio of the shares to be taken as collateral when providing share pledge loan.
Similarly, NRB has also revised the fixed interest rate on loan. As per the new provision, the interest rate can be revised for the first time in seven years and thereafter every five years in the written agreement with the borrower. The central bank has also revised the loan prepayment fee. If the loan is repaid within two years of the loan disbursement, the BFIs can charge 100 percent of the service fee. Likewise, for prepayment of loan between two to five years, maximum 50 percent of the service fee is applicable. And if the loan is repaid after more than five years, only 20 percent service fee can be taken.