Kathmandu, Aug 1: A new regulatory provision by the Nepal Rastra Bank is expected to allow commercial banks to recognise up to Rs 10 billion in loan interest collected within the first 15 days of the new fiscal year as income for the previous fiscal year, significantly boosting distributable profits and dividend payouts.
Under the new rule, banks can count interest received by Shrawan 15, even if it was not collected by the fiscal year’s end, as part of the previous year’s distributable profit. Previously, such unpaid interest had to be transferred to a regulatory reserve and could not be distributed as dividends until the cash was actually received.
Banking executives say the move will improve dividend-paying capacity without altering banks’ actual earnings, as interest income is already recorded on an accrual basis during the fiscal year. The change allows cash collected during the 15-day grace period to remain part of distributable profits rather than being locked in reserves.
A senior official at Global IME Bank said the provision could raise distributable profits by around 1 to 1.5 per cent. With the bank expecting to collect Rs 400 million to Rs 450 million in interest during the first 15 days of the new fiscal year, similar recoveries across the banking sector could push total collections above Rs 10 billion.
Officials at Himalayan Bank said the rule would also strengthen banks’ capital adequacy and improve their ability to distribute dividends. They estimate Nepal’s 20 commercial banks could collectively recover around Rs 10 billion in loan interest during the two weeks, depending on borrowers’ repayment capacity.
A senior official at Nepal Investment Mega Bank similarly estimated sector-wide collections of Rs 8 billion to Rs 10 billion during the grace period.
Bankers, however, cautioned that the policy could alter borrower behaviour. With an additional 15-day window, some businesses may delay interest payments instead of settling dues by the fiscal year end. Even borrowers with sufficient liquidity could choose to wait until the deadline, reducing the urgency to pay by the end of Asar (mid-June).
Still, banks believe the flexibility will improve cash recovery while increasing returns for shareholders through higher dividend distributions.
People’s News Monitoring Service
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