KATHMANDU, July 28 -- Nepal Rastra Bank (NRB) has increased the threshold for provisioning on loan loss to up to five percent on the credit provided by the banks and financial institutions (BFIs) targeted at the COVID-affected businesses.

The central bank has taken the move on the suspicion that an excess credit provided by the BFIs during the impact period of the coronavirus could have been channelized into unproductive spending. According to the NRB records, the BFIs extended their loan portfolio by an additional Rs 898 billion in the last fiscal year. Despite providing a hefty amount of loan, the economic growth appeared dismal in the last fiscal year.

A loan loss provision is an income statement for expenses that the BFIs need to se...