Nabil Bank Limited has been found to be engaged in an ‘illegal practice’ in recovering loans from its borrowers.
The commercial bank has been flouting Nepal Rastra Bank rules and standards in recovering some loans, according to five borrowers who came in contact with Republica. Nabil Bank has been deducting the balance from the accounts of some borrowers, which is in contravention of NRB directives.
Borrowers who fail to service their debts on time for whatever reason have found the bank deducting the balance from their accounts after taking the accounts offline from its Core Banking Software (CBS). After taking the accounts offline, the bank deducts from the accounts in a manner that is against existing loan recovery norms.
While NRB’s rules allow the bank to first debit the penal interest, then the interest and then only the principal amount, the bank is doing just the opposite. The borrowers claim that the bank first deducted the principal before debiting interest, and then only the penal interest.
It seems that Nabil Bank has built its CBS in a way that allows its staff to take targeted borrowers’ accounts offline and manually deduct from them, which is against NRB norms.
This practice is apparently aimed at reducing the loan loss provisioning so that the non-performing loan (NPL) ratio does not go up. This has helped the bank to maintain its profitability and distribute dividends to shareholders.
However, Nabil Bank CEO Anil K Shah denies that the bank is engaged in any unfair practice for loan recovery. “As per our practice for collection of repayments under all loans, the client deposits the required amount in a designated account which is linked with the loan account for repayment purposes. On the due date, the system will automatically deduct the required amount in the order of interests first and then principal,” said Shah.
“In the instance of delayed payment the amount debited by the system shall first be applied toward the late payment fee, penal interest, interest due and then only towards the principal. All these transactions are carried out through the system and no manual intervention takes place,” he added.
NRB officials say that they will investigate Nabil Bank’s practice. “We will look into the complaint if we formally receive it and take action if the bank is found to be flouting our rules,” said Dev Kumar Dhakal, executive director at the Banks and Financial Institutions Regulation Department at NRB.
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