KATHMANDU: Banks and financial institutions (BFIs) will have to sign a pari-passu agreement before providing or renewing working capital loans such as overdraft, cash credit, demand loan, trust receipt loan and shortterm loans exceeding Rs 10 million to the same borrower. Pari-passu agreement ensures proportional rights on collateral put by the borrower among the financing BFIs based on the size of loans. This is the first time that Nepal Rastra Bank (NRB) has made a provision on pari-passu amid demands from the BFIs to control increased multiple lending that has exposed them to more risks. While signing such agreement, concerned parties should disclose size of loans, details about collateral and shares of each lender on the collateral, states a new circular issued by the central bank. “Provided such loans are not recovered, concerned BFIs will have to recover the loans from collateral based on para-passu agreement,” it added. An NRB official said that the move was taken to ensure that the BFIs will be aware of risks associated with the loans while extending them to certain borrowers. Until now, a BFI providing first loan to the borrower will have the first right on the collateral in the event of loan default, while other BFIs will have consecutive rights on the collateral. The BFIs involved should determine the maximum limit of loans based on the stocks of goods and receivables (goods sold and payment remaining) of the borrower. The BFIs have to get details of stocks and receivables at least every three months from the loanee. In case of loans below Rs 10 million, the BFIs can lend upon receiving ‘No Objection Letter issued by previous lenders. (PR)
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