Kathmandu. With the Nepal Rastra Bank indicating that it will relax the blacklist system, there has been a difference of opinion between the banking sector and the private sector. The private sector is excited after the central bank is preparing to review the current strict system, while banks and financial institutions are saying that they should take precautions.
According to the current system, a person is blacklisted if the cheque bounces or does not repay the loan taken from the bank. The provision of being blacklisted even if the amount is small or big is only one rupee, has significantly increased the number of people in such lists in recent times.
According to the data of the Credit Information Center, the number of blacklisted people has increased to more than 1 lakh 69 thousand by mid-March of the current fiscal year. More than a third of these people have been blacklisted due to cheque bounce, while the rest have been blacklisted due to non-payment of loans. As a result, the number of people exiting banking is also increasing.
In view of this situation, the central bank has initiated a study to change the criteria, procedures and classification to be kept in the blacklist. The policymakers seem to be coming to the conclusion that it is not appropriate to treat all the borrowers of the same nature in the same way. There has been a growing debate on the need to distinguish between those who are in temporary trouble and those who deliberately do not repay their loans.
However, the banking sector has warned that such flexibility could send the wrong message. They say that if the blacklist system is weakened at a time when there is a problem in loan recovery, the tendency of not repaying the loan will increase further. There are concerns that this could affect the financial discipline of the banks and the overall system.
According to banks, not all borrowers are in trouble for the same reason. Some are unable to pay due to real financial problems, while others deliberately delay or not pay. Therefore, they argue that without a clear study and classification, the problem can be further complicated.
The private sector, on the other hand, says that economic activities have been affected by the current strict system. They complain that a large number of businessmen have been blacklisted and they are not able to take new loans, disrupt banking transactions and expand their business. This, they claim, has weakened the overall investment climate.
Small and medium-sized businesses in particular seem to be more affected. The private sector has stressed the need for a ‘pragmatic policy’, saying that they are forced to leave the banking system after being blacklisted due to small amounts.
In the past, borrowers below the minimum credit limit were not blacklisted. But now that the limit has been removed, a large number of small borrowers have also started getting blacklisted. There are also calls for a re-review of this.
At the heart of the debate now is who should be blacklisted, who should not be kept and how to behave differently. If some concessions are given to the businessmen in the manufacturing sector, the economy is expected to be revitalized. But at the same time, balancing banking discipline is challenging.
Overall, the possible changes to the blacklist regime have raised hopes of a boost in economic activity and a similar risk of weakening fiscal discipline on the other. What kind of balanced policy the central bank will bring will determine the direction of both the banking system and the private sector in the coming days.
