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Tuesday, August 9, 2022

Central Bank issues guidelines to non-bank borrowers on loan concessions

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The Central Bank has issued fresh guidelines to the non-bank lenders stipulating how they must go about providing concessions to borrowers affected by the current economic crisis which is sending shockwaves across almost every sector.

The fresh instructions which are by and large similar to the ones issued to their banking sector counterparts two weeks ago came as the Central Bank was getting overwhelmed with requests for relief from multitude of sections as pain inflicted by the ongoing crisis is much deeper than what was brought about by the two years of the pandemic.

Borrowers of non-bank lenders typically consist of subprime borrowers and they are the first to go bust when the economy tanks in the scale and speed of what is seen at present.

“These concessions are granted to devise suitable repayment arrangements based on the new repayment capacities of the borrower, on a case-by-case basis, while preserving non-bank financial institutes sector stability by preventing any elevated strain on the financial system,” the circular issued to the non-bank lenders stated. Unlike at the latter stages of the pandemic relief where only designated sectors were singled out to be eligible for the moratoria, these broader guidelines cover all sectors including but not limited to tourism, transportation, MSMEs engaged in manufacturing, services, agriculture, and construction, as the breadth and depth of the current crisis transcend above a couple of sectors.

Accordingly, non-bank lenders were instructed to provide concessions spanning from grace periods for capital or interest or, for both components or, part of the capital or interest, or to restructure their facilities.

In the case of lease facilities, the Central Bank wanted non-bank lenders to, “devise a mechanism to structure the repayment plan not exceeding the contracted instalment value of the existing credit facility or facilities, with an extended tenure with a reasonable rate of interest, to match with the repayment capabilities of the borrowers”.
In the case of other credit facilities, a suitable mechanism could be devised to structure the repayment plan.

Further, when pricing for the grace period, the Central Bank also advised non-bank lenders to charge the lower of 20 percent or contractual rate of interest applied prior to consideration of the grace period plus 5 percent, which should also be charged only on the amount considered for the grace period.

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