Credit Management BTC Regulators View
Credit Management BTC Regulators View
Credit Management BTC Regulators View
Meaning
Credit (function) can be defined as the channelization of the fund from the people/entities that have excess fund to the people/entities that have deficit (of fund).
Technically, Credit can be defined as: A contractual agreement in which a borrower receives something of a value with the explicit agreement to repay the lender at some date in future. The borrower pays interest as compensation (to the lender) for allowing the use of fund
Credit risk is defined as the potential that a banks borrower or counter party will fail to meet its obligation in accordance with the agreed terms.
Supervisors must be satisfied that banks have a credit risk management process that takes into account the risk profile of the institution, with prudent policies and processes to identify, measure, monitor and control credit risk (including counter party risk). This would include granting, evaluating and on going management of the loan and investment portfolio.
market risk and operational risk. Capital should be adequate as per prescribed risk weighted assets. For all credit portfolio exposures should be risk weighted net of specific provisions.
Claims on government and central banks. Claims on other official entities. Claims on banks Claims on corporate & securities firm. Claims on regulatory retail portfolios. Claims secured by residential property. Claims secured by commercial real state Past due claims. High-risk claims Other assets Off-balance sheet items
with the bank. Fixed Deposit Receipts/Certificates of deposits/other deposits of other Banks, who fulfill the capital adequacy requirements, subject to a 20% supervisory haircut. Gold. Securities issued by the Government of Nepal and Nepal Rastra Bank. Guarantee of the Government of Nepal Financial guarantee/counter guarantee of domestic banks who meet the minimum capital adequacy requirements subject to a haircut of 20%. Securities/Financial guarantee/Counter guarantee issued by sovereigns. Securities/Financial guarantee/Counter guarantee issued by MDBs in the list specified in 3.3 b (3 & 4, CAF) Securities/Financial guarantee/Counter guarantee issued by banks with ECA rating 2 or better. The supervisory haircut shall be 20% and 50% for the banks with ECA rating of 0-1 and 2 respectively.
Total
Directive 2
Classification of Loan & Advances Category Pass Substandard Doubtful Loss Past Dues 0-3 Months 3-6 Months 6Month-1 Year >1Year
1.
2.
3. 4.
Performing Loan- Pass Loan Non Performing Loan- Other than Pass Category
Loan against security of Gold and Silver Loan against security of Fixed Deposit Reciept Loan against security of NRB/Govt Securities
classified as pass after renewal of the loan. No restriction in classifying the loans & advances from low risk to high risk category Loans & advances includes Bills Purchases and Discounted
3.
4.
5.
6.
7. 8. 9. 10.
If the Security is Inadequate(Market price of the security) The borrower has been declared bankrupt The borrower is absconding or cannot be found Purchased or discounted bills are not realized and LC or Gtee (non funded fund) that has been converted into funded fund and are not realized within 90 days The credit when misused. Owing to the non recovery, initiation as to auctioning of the collateral has passed six months and if the recovery process is under litigation Loan provided to the borrower blacklisted by Credit Information Centre If the project or business is not in a position of operation or not operating If the credit card is not realized within 90 days from due date Other loans are disbursed to settle the TR Loan(without pre-approval during LC opening).
be made against the entire outstanding loan on the basis of the past due period of overdue installment. But FIs having no overdraft facilities.
That particular installment is classified as loss. After one year (nonpayment) full amount of the loan shall be classified as loss. Term Loan is defined as the loan having more than one year maturity.
Gold/Silver Loan
BFIs can lend against gold and silver after
The provision should be included in the policy/bylaws Sufficient security, valuation, insurance and tester Annual study on feasibility and profitability of such loan and monitoring from BoD
Prohibition to recover Principal & Interest by overdrawing the current account and exceeding overdraft limit
However, this arrangement shall not be construed as prohibitive for recovering the principal & interest by debiting the customers account having sufficient balance
such overdrawn principal amount shall be downgraded by one step from its current classification Grace period : generally not more than 1 year. (if more than one year, same is to be ratified from the higher authority than the loan approving authority with adequate justification)
3.
4.
12.50% loan loss provision should be provided. In case of insured loan 25% of the above mentioned provisioning rate .
Adjustment in Provisioning
Except in the following cases banks are prohibited from making any adjustments in their loan loss provision amount
1.
2.
3.
4.
If the loan is fully written off If the loan is repaid in installment or partially, at the time of providing loan loss provisioning as required per the classification, the provision amount may be written back upto the extend of repaid amount If the payment of interest & principal of Rescheduled & Restructured loan is regular upto 2 years Separate statement should be prepared for such loans.
Undevided Family members Proprietor/Partner/family members(in case of firms) Promoter, Director and their family members (in case of companies)
the loan outstanding is more than 25 lacs Assets should be Valued by independent valuators Clear provision should be made in the Financial byrules regarding NBA auctioning. Should be disposed at an earliest possible Should be notified to NRB when NBA is used for own purpose Can be returned to the borrower
without prior approval of NRB. Banks should be capital adequate Such provision should be clearly mentioned in the banks credit policy Cant be done during the last month of FY Half Yearly reporting to NRB 50% Risk Wt in Contingent liability
Other provisions
IPO Lending not allowed for IPO (lending only unsubscribed for seven days, Margin) Issue manager is not allowed to lend. Pass or Loss. Margin Lending Average price of 180 days or market price whichever is less Security cant be revalued for loan enhancement purpose. Monitoring regularly. Restrction on lending against the Shares of the co. having inadequate capital(BFIs), negative networth, delisted from NEPSE, Unaudited since last one year. Bank Guarantee Claim; within 7 days, otherwise 200% Risk Weight Interbank Lending/Borrowing/Investment For 7 days only maximum for 30 days approving from Board Revolving Person Loans Overdraft including Revolving Personal Loans upto 10M only. Renewal till the end of Ashad 2071 Risk Takers Directors, CEOs or Mgmt Level cant borrow other than education loan, Hire purchase loan, Home loan and household purpose.
Directive 3
the preceding quarter end . (Funded & Non funded facility) Similarly, NRB has prescribed two ceilings for exposure on specific sectors i.e. between 50% to 100% of core capital and more than 100% of core capital. Banks are required to monitor the lending in the first tier while in the latter the Board has to approve the exposure. The Board also has to decide whether they wish to continue the exposure in excess of 100% of core capital on an annual basis. 30% of CC to the Export Sector, SME Industry, Pharmaceuticals, Agriculture sector, Tourism Sector, Cement Industry, Iron Industry and Productive Sectors.
Constituents of a Group
Both companies where one company holds at least 25% of another
company. Individual, Directors, Shareholders, Partners, Proprietors and family members. Companies where persons as stated in 2. hold more than 25% stake Companies whose management is controlled by virtue of holding a position of chairman, Chief Executive or the authority to nominate more than 25% of the Board of directors. Companies and individuals where individuals as stated in 2 have provided guarantee to. Firms, companies and group members affiliated as one group More than one individuals having same collateral.
limits to Nepal Oil Corporation and Nepal Khadya Sansthan. Similarly, the restriction is not applicable in loans secured by Fixed Deposits, Govt. and NRB Bond, unconditional guarantee of Multilateral Development Banks (IMF, MDB etc.) and Internationally Rated Banks (Top 1000 Banks as per Banker of July)
group of borrower in excess of the single obligor limit, the Bank is required to create 100% loan loss provision in the excess amount.
Capital Power purchase agreement is required to go beyond 25% of core capital 1% or 100%( i.e. Pass or Loss) Investment:
If
not listed for 3 years, Investment adjustment reserve(full amount) should be created.
land, building /real estate. Total Real Estate Loan 25% of Total Loan(land purchase and plotting 10%) 150% RW for the loan exceeding the limit Personal Home Loan Rs 10M (not included in the above limit)
loan(within 3 years) Annual Plan should be formulated; half yearly target. BoD should review half yearly 10% of total loan in Agriculture and Energy sectors. (by 2071)
Directives NO 12
Credit Information and Black Listing Credit information is compulsory Quarterly report of lending from banks and financial institutions to CIC Customers details more than the lending limits of 10 lacs Process of black listing Provisions for asset valuators (less than 2/3 at auction) Actions on false financial statements approved by auditors Restriction on lending to blacklisted borrowers Forfeiture of Passport Conditions of inclusion in and removal from black list etc. Membership of CIC Publication of Names of blacklisted borrowers>10m DBR
Who is blacklisted?
Borrowers/defaulters - overdue loan of one year.
(BoD can add 3 months time) Misuse of loan/facility Misuse of collateral Absconding borrower Bankrupt borrower BFI files the case in a court Files the case in DRT
Who is blacklisted?
Other
Forgery cases; fake cheques/documents Proved as criminal Recovery under section 57 of BAFIA Loan write off Insufficient Balance in A/C Closing A/C without making payment of issued cheques Penalised under NRB Acts 2058, BAFIA and Directives