KATHMANDU, May 27: Cooperatives must now invest at least 51% of their credits issued in production enterprises, according to unified guidelines approved by the Department of Cooperatives (DoC) on Thursday.
At a time when cooperatives are criticized for investing colossal sums in unproductive sectors, including real estate companies; the sector regulator has asked cooperatives to limit their investments in these activities. To date, more than a dozen cooperatives, including Civil Savings and Loans Cooperatives and Oriental Savings and Loans Cooperatives, have struggled due to their overexposure to land and real estate activities.
Under the new rules, co-ops will have to keep their non-performing loans to less than 5% of their loan portfolio. Like commercial banks, cooperatives must also maintain an allowance for loan losses in any loan issued that tends to become a bad debt.
According to the DoC, the cooperatives have been mandated to maintain a one percent loan loss provision for all credits issued. In the event of a bad loan in which a debtor does not pay the monthly installments until one year after the due date, the cooperatives must maintain a 35% provision for loan losses. For any loan repayments exceeding one year from the due date, co-ops must maintain 100% of the loan amount as a provision for loan losses.
Similarly, cooperatives were prohibited from granting loans to more than 49% of the members of the board of directors and the accounts monitoring committee at a time. Cooperatives cannot charge interest rates higher than the 16% benchmark rate.