The Rural Enterprise Development Corporation (REDCL) was able to bring down its ratio of non-performing loan (NPL) to 18.7 percent this year from 27 percent in 2017, surpassing its target of 25 percent.
According to the REDCL’s annual report, reducing the NPL was one of the major tasks. This year the company plans to further bring it down to 15 percent.
A loan becomes NPL when the borrower does not make interest payments or principal within 90 days. This means that, of the total outstanding loan, more than a quarter of loan availed from REDCL defaulted in 2017.
However the NPL rate of 27 percent was still below the acceptable limit of 30 percent as authorised by the government.
To achieve this target, the annual report stated that the REDCL formulated and implemented various recovery strategies.
One of the issues that surfaced from monitoring and recovery tour by REDCL staff revealed that repayment amount of revolving fund-II (RF-II) gets deposited wrongly into BDBL’s savings account of the client or into the RF-I account, resulting in defaulting of the loan.
Despite concerns on the NPL, REDCL’s services have penetrated in every gewog save for Lunana due to geographical difficulty.
Since REDCL has been relying on BDBL for post-sanction service, the annual report stated that there are dzongkhags with only one focal official appointed for REDCL. This poses difficulties when the official is on leave, tour or training. Again when there is nobody to accept loan repayments from REDCL, it results in NPL.
As of December 31, 2017, a total of Nu 76.53 million is deposited in the repayment account, of which Nu 68.64M is the Principal amount and Nu 7.89M, the interest amount.
In 2017, REDCL earned an interest income of Nu 3.63M against Nu 2.23M in 2016.
The 63 percent increase in income from 2016 to 2017 has resulted in narrowing down the company’s loss from Nu 32M to Nu 4.8M.
The company has also ploughed back the principal amount to fund the RF-II activities and to utilise the interest amount for office operation as a fixed deposit.
“This initiative proved beneficial to REDCL because interest amount on fixed deposit, which is about Nu 1M is able to meet the operation expenses up to a certain extent,” the report stated.
Gross revenue increased from Nu 2.2M to Nu 4.26M reflecting an increase of 93.64 percent. The increase in revenue income was mainly because of increase in the interest income, which amounted to Nu 3.63M.
In terms of expenditure, due to the increase of employment cost on account salary and allowances, travel expenses, payment of post sanction service fees to BDBL, expenditure also increased from Nu 7M in 2016 to Nu 36.16M in 2017, an increase of 416.57 percent.
Of the Nu 400M earmarked for the RF-II, the REDCL has received Nu 207M for the activities and another Nu 104M as office expenses until December 31, 2017.
REDCL also received 6,444 applications under the RF-II, of which 2,419 applications were received in 2017 alone. In terms of disbursement, the total fund disbursed as of 31st December 2017 stands at Nu 105,62M.
On the number of projects registered, Dagana and Samdrupjongkhar dzongkhags topped the list with 273 projects out of the total 2,419 in 2017, representing about 11.29 percent. This was followed by Paro dzongkhag with 267 projects and Wangduephodrang with 176 projects.
The least number of projects registered was from Samtse with only thre projects last year.
As per the annual performance agreement of the 2017, REDCL was required to fund 300 numbers of RF-II projects and on the assumption that each project would create at least one job opportunity; the number of employment created would be 300.
REDCL, however, approved a total of 962 projects against its target of 300, recording a 320.70 percent achievement.
Meanwhile, it was also highlighted that RF-II loan is insufficient to sustain the office since there is no scope for other investments and returns from RF-II is minor. “This poses a challenge and a threat to the long term sustainability of the office,” the report stated.