Central bank relaxes inter-bank loan purchase

The banks and financial institution can now buy loans of another bank or financial institution that have failed to pay back the loans taken under inter-bank lending as a measure to rake up the outstanding amount, according to the central bank.
"The bank that has lent against the defaulted loan can purchase the loans at not less than double the outstanding amount that the borrowing bank need to pay," said spokesperson of the central bank Bhaskar Mani Gyanwali."The move is, especially, supposed to help the banks and financial institutions that are stuck by lending to troubled financial institutions under inter-bank lending like Nepal Share Markets and Finance Ltd," he affirmed.
Nepal Share Markets and Finance Ltd have obtained loans worth Rs 680 million from different commercial banks that has remained unpaid after its chairman Yogendra Shrestha fled.
The incidence of inter-bank lending had surged in the recent times and some of the financial institutions happen to lend some money to the few of the troubled ones, the central bank has found loan loss provisioning necessary for inter-bank lending as well.
Due to acute liquidity crunch the central bank had allowed the banks and financial institutions to lend to other banks and financial institutions against their good loans in June. The comfortable liquidity situation has contracted the inter-bank transaction lately. The inter-bank lending of commercial banks stood at Rs 90.02 billion during the four months of the current fiscal year compared to Rs 119.99 billion in the corresponding period of the previous year. The need to borrow from another financial institution has gone down as almost all financial institutions are flushed with liquidity. The inter-bank lending rate that reached as high as 12 per cent have now gone down to 0.75 per cent.
Likewise, Nepal Rastra Bank (NRB) has asked the microfinance development banks to seek approval of central bank while opening, transferring or closing down its branches.