Central bank directs financial institutions to restructure bird flu affected loans
The central bank directed banks and financial institutions to restructure or reschedule loans floated for poultry farming but were affected by the avian influenza outbreak.
The move will help poultry farmers struggling to repay loans after the bird flu epidemic hit them last summer.
"The lending institutions can restructure or reschedule the loan for one time, if the loans floated for poultry farming have become difficult to recover," the central bank said, adding that the banks and financial institutions, however, need to cross-check the requests with government data of the affected farms and only those farms located in the affected areas will be eligible for rescheduling of loans.
The restructuring of the loans allows the borrowers extend the repayment period and make repayment by the borrower easier. It will also avoid default loans as the new repayment schedule will provide the borrowers more time to repay the loans. But the borrowers have to present a proposed repayment plan.
Likewise, the rescheduling also gives the banks and financial institutions a breathing space as they donot need to provision for possible loan defaults. The lower provisioning means better profits for the banks and financial institutions.
Although, financial institutions need to provision 12.5 per cent of the outstanding amount for probable default in case of restructured loans, the central bank has allowed them to provision only one per cent of the rescheduled poultry loans.
The bird flu outbreak last July and August led to massive culling of chickens in the Kathmandu Valley, Kavre, Chitwan and Hetauda, which had affected the poultry business worth billions.