The number of firms and individuals who have been blacklisted for defaulting loans has been rising since the last fiscal year. The roster of delinquents has grown longer while the banking sector has been complaining about difficulties in recovering loans from the realty sector.

The number of blacklisted firms and individuals has surged by the quarter. The first two months of the current fiscal year saw their number increase by 161 to 2,668. There were 131 new entrants in the fourth quarter of the last fiscal year. Such additions numbered 84 in the third quarter, 59 in the second quarter and 51 in the first quarter during last fiscal year.

“The list has been becoming longer due to defaults in the realty sector,” said an official of the Credit Information Bureau (CIB) that keeps records of blacklisted firms and individuals. “Other businesses operated by realty traders have also been blacklisted .” Lately, loan payment and auction notices have been appearing with increasing frequency in the papers, and realty loans make up most of them.

The CIB official added that that the criteria for blacklisting has been broadened lately. The central bank has directed that anybody whose cheques bounce three times in a row should also be entered in the list. Recently, Kist Bank, acting on the request of Prudential Finance, had asked the CIB to blacklist Rajendra? Shakya of Guna Group who has a deposit account with Kist for issuing bad cheques repeatedly. Of late, more people have been blacklisted for cases related to cheque bounce than for credit default. “Construction of a majority of the apartments has stalled and builders are under pressure to make refunds to clients who had booked or paid in advance,” said a CEO of a commercial bank. “Hence, they are writing cheques without adequate fund in their accounts.”

The number of blacklisted bank loan defaulters had begun to rise since fiscal year 2010-11 after a Nepal Rastra Bank (NRB) directive allowed banks and financial institutions (BFIs) to include defaulters in the list irrespective of the size of the loan.

Although this is an alternative provision, loan defaults of more than Rs 2.5 million should be compulsorily blacklisted . Earlier, there had been a decline in incidences of blacklisting from fiscal 2006-07 to fiscal 2008-09.?

Nepal Bankers’ Association President Ashoke Rana said that a crisis in the real estate sector could be the reason behind the expanding blacklist. “Instead of putting cent percent provisioning for non-recovered loans, banks go for auctioning the collateral and blacklisting the loanees,” he added. The central bank is also not in a position to say whether real estate defaults were the major reason behind the blacklist becoming longer. “Of course, recovery in the real estate sector has remained poor and realty traders have been blacklisted ,” said NRB spokesperson Bhaskarmani Gnawali. “We are, however, not sure whether that is the reason.” He added that the central bank had directed BFIs to focus on recovering loans.

Bankers say that slackness in realty sector has affected other businesses too. “Along with the realty sector, automobile and restaurant businesses, among others, are in problems,” said a banker.

source: The Kathmand post,10 Oct 2012