Nepal Rastra Bank (NRB) has extended the loan repayment deadline for borrowers by one year and relaxed loan loss provisioning levels for banks considering the difficult situation created by a long-running Tarai banda and undeclared Indian blockade.

The central bank has also allowed banks and financial institutions (BFIs) to increase the grace period for starting loan repayments for various business and development projects by one year. It has also pushed back the repayment deadline for trust receipt loans provided to importers.

The decision to go easy on lenders and borrowers followed a plea from bankers and traders for relief as life had become hard for them due to the Indian embargo and banda. The provision is applicable to loans which were active until mid-April 2015.

NRB Deputy Governor Maha Prasad Adhikari said that the measure was taken to provide relief to borrowers as the ongoing crisis had created situation where even borrowers who had been good for the last 15-20 years could technically default on loan repayments.

“The ongoing situation has hit the main industrial area of the country and affected industrial production and supply, thereby disrupting the cash flow necessary to repay loans,” he said. According to Adhikari, NRB’s measure is designed to give relief on loan payments, but it cannot help in production and supply.

The central bank said in a circular issued on Tuesday that BFIs could reschedule and restructure loans by extending the repayment deadline by one year for the industry, business, education, tourism (hotel, airlines and travel agencies), energy (hydropower production, transmission and distribution) and service sectors.

In order for loans to be rescheduled and restructured, the borrower needs to submit a work plan for rescheduling and restructuring, the concerned BFI should be convinced that the borrower’s capacity to repay loans has diminished, and rescheduling and restructuring should be completed by mid-January 2016, NRB said.

The rescheduled loans can be categorized as good loans, but their details should be prepared separately, according to the central bank.

As far as the relaxation on provisioning is concerned, the central bank has allowed loans to be categorized as good if the principal, interest and instalments are paid by mid-January 2016. And if loans are categorized as good according to the new circular, BFIs cannot charge penal interest and fees.

Likewise, NRB has relaxed the provision for loans put in the watch list. If the existing provision requires BFIs to make provisioning of 4 percent for such loans at the end of the current fiscal year, the new provision has slashed the provisioning level to 2 percent.

If the completion of business and development projects is delayed due to the ongoing difficult situation, or the project completion deadline has passed and the instalment payment period has begun, the grace period for starting payments can be extended by one year, NRB said. Due to the banda and suspension of imports, many projects are looking at time and cost overruns.

The central bank has also extended the payment duration of TR loans to 180 days from the existing 120 days, considering the fact that importers have failed to bring goods due to the Indian embargo. Likewise, BFIs can treat interest paid by mid-November as income of the first quarter of this fiscal year.