Kathmandu. KATHMANDU: Nepal Rastra Bank (NRB) has revised the interest capitalization provisions of ‘A’ and ‘B’ years for banks and financial institutions. Nepal Rastra Bank (NRB) has amended the Integrated Directive to Banks and Financial Institutions, 2082 to make the provision related to interest capitalization on projects of long-term nature more flexible.

According to the amended provision issued by the Nepal Rastra Bank, the maturity interest can be capitalized during the grace period until the cash flow from the commercial operation or production of long-term projects starts. Previously, such a facility was available only in a limited number of priority sector projects.

According to the provision made by the Nepal Rastra Bank, the banks and financial institutions should prepare and implement clear procedures for capitalizing the interest. The work procedure should include issues such as cash flow analysis of projects, payment arrangement of capitalized interest, debt-self-capital ratio and proposed capital plan. In addition, such a decision should be approved by the board of directors of the concerned institution.

The central bank has also made a provision that if the interest is capitalized by extending the grace period once the fixed grace period, such loans will be considered as restructured loans and a minimum of 25 percent loan loss provision should be maintained. However, the Nepal Rastra Bank (NRB) has stated that the interest on the sale income can be partially capitalized in the case of hydropower projects that have not been able to operate in full capacity due to the construction of the transmission line even after the completion of the hydropower project. In such a situation, there is a provision that the loan has not been restructured.

Similarly, the interest period can be capitalized even when it takes more than two years to resume the project due to natural calamities, riots or out-of-control of the borrower. Such loans should be considered as restructured loans and a minimum loan loss provision of 12.5 percent should be maintained.