A Questionable Decision

While the rationale behind the central bank’s policy on non-performing loans (NPL), such as the six months cooling period is yet to be known, it has intimidated business entities in the country.

For one, it could be a wise decision for the security of the country’s economy after reforms and there could be a good reason behind. However, the decisions have hit people who are just coming out of the ashes of the pandemic. Additionally, this move is indefinite and it is applied even to closed NPL accounts.

It is bad news for those who have defaulted or whose loan has gone into NPL as banks will keep the cooling period of six months before people are eligible to avail credit. For some, the cooling period would not be a problem; especially for those who do not need credit but take it for different reasons.

Meanwhile, such directives have negative impacts mainly on the construction sector. If a contractor’s NPL becomes performing loans also now, they will have to wait for six months.

Some contractors say an observation period of 6 months is not rational because they never know when their business will go under NPL as they don’t know what will happen to the viability of the business. The concern is augmented as many have work at hand, which could affect the country’s development projects, too.

There are suggestions that instead of keeping it as a cooling period, it is better to be stringent on wilful defaulters. Further, the cooling period will also affect the funding capacity of business and indirectly encourage unorganized money lending. Though there are regulations here too, desperation will lead people to borrow at exorbitant interest rates. The rich will become richer.

There are also some speculating that the decision could be a fallout of what some people would have done during the Covid 19 pandemic – defaulting though they had the means to repay. However, everyone cannot and should not be punished for something that few people did.

Additionally, some say that those who were responsible for the NPL’s should be held to account and point their fingers at the FIs. But the biggest concern here is that the six month cooling period could lead to a huge disparity in terms of works availed as those who have sufficient capital will not be affected. It will be, as can be seen, the ones who have been depending solely on FIs who will be the most affected.

For the central bank to take such a measure, the end ought to be good. The question asked is if the end justifies the means.