Insurance Must Cover Full Financial Risk of BFIs’ Loan: Monetary Policy

Kathmandu: Nepal Rastra Bank has introduced a provision that banks and financial institutions(BFIs) must insure the principal and interest of the loan while disbursing loans. Bank Governor Maha Prasad Adhikari has announced such a provision while announcing the monetary policy for the financial year 2079-80.

When insuring the property pledged as security, the sum assured must be sufficient to bear the entire financial risk of the loan invested by the BFIs.

Rastra Bank is the regulatory authority for BFIs and Govt’s financial advisor as well.

There is a provision that insurance must be compulsory when disbursing any loan with collateral. However, BFIs have been insuring by declaring a value less than the loan amount at the request of large borrowers, without covering the risk of the entire amount of the loan.

Due to the mandatory provision in the new Monetary Policy, it is expected that there will be a significant increase in the property insurance income of non-life insurers.

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