NRB revises interest capitalization provision for hydropower loans

KATHMANDU: Nepal Rastra Bank (NRB) has amended rules governing the capitalization of interest on loans extended to long-term projects, including hydropower schemes, during their moratorium period.

Through an amendment to the Unified Directives issued on Wednesday, the central bank has allowed banks and financial institutions (BFIs) to capitalize interest accrued on project loans during the moratorium period until the commencement of commercial production and generation of cash flows.

Previously, BFIs were not permitted to capitalize interest accumulated during the moratorium period, requiring such interest to be treated separately from the principal loan amount.

The revised provision applies to long-term projects that have not undergone restructuring or rescheduling of their credit facilities. If the moratorium period is extended beyond the original terms, the loan will be treated as restructured, requiring BFIs to maintain a minimum loan-loss provision of 25 percent against such exposure.

NRB has also introduced a special arrangement for hydropower projects that have completed construction but are unable to operate at full capacity due to delays in transmission line infrastructure. In such cases, BFIs may partially capitalize interest to the extent that it is not covered by the project's net sales proceeds until the transmission line becomes operational.