Kathmandu: Nepal Rastra Bank (NRB) has officially revoked a long-standing provision that allowed financial institutions to record interest recovered up until July 15 (Shrawan 15) as income for the preceding fiscal year ending in mid-June.
This policy shift has triggered significant concern among bankers, who argue that losing this 15-day grace period will complicate debt recovery during an already difficult economic climate. Historically, both banks and borrowers had grown accustomed to this extra window, and the sudden enforcement of a strict year-end deadline is creating operational friction and making it harder for banks to close their books favourably.
The decision follows an intense debate during the previous fiscal year over dividend distributions. While banks had traditionally included interest collected in early July to boost their annual profits and dividends, the central bank’s supervisory departments recently pushed for stricter accounting standards.
Although NRB ultimately allowed the practice for the last fiscal year as a final exception, it has mandated that, starting this year, only interest actually realized by the final day of the fiscal year can be booked as annual income. Bankers warn that this will not only impact reported profits but also increase the pressure on recovery teams to collect dues from struggling borrowers within a shorter timeframe.
Bankers further emphasize that the current economic slowdown makes it difficult to exert excessive pressure on borrowers, many of whom are facing liquidity issues. They argue that many reliable clients often intend to pay but require a few additional days beyond the fiscal year-end to finalize their payments. By removing the 15-day extension, banks fear a rise in non-performing assets and a decline in the quality of their financial statements. Representatives from the banking sector have urged the central bank to reconsider the timeline, suggesting that the extension provided a necessary cushion that supported financial stability without undermining fiscal discipline.
In addition to the interest collection issue, bankers are also seeking relief regarding the “Debenture Redemption Reserve.” Current regulations require banks to set aside substantial funds in this reserve until their issued debentures mature, making those funds unavailable for dividends even if the bank has significant accumulated losses.
Bankers have requested the NRB to allow the issuance of bonus shares from these reserves. They point out that several banks have been unable to provide returns to shareholders for three to four years, and allowing them to utilize these reserves for bonus shares would help maintain investor confidence while the sector navigates its current financial challenges.
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