All BFIs to extend agro loans at subsidised rate

KATHMANDU:

Nepal Rastra Bank (NRB) has instructed development banks (class ‘B’ financial institutions) and finance companies (class ‘C’ financial institutions) to extend agriculture loan at subsidised interest rate under the government’s programme titled ‘Interest Subsidy for Commercial Agriculture Loans to the Youth’. The programme was introduced this fiscal to encourage more youth to take up commercial farming.

The instructions were given in a circular issued by the central bank on Sunday, based on the first amendment of ‘Guideline on Interest Subsidy for Commercial Agriculture Loans to the Youth’.

The guideline was recently amended as the Agriculture and Water Resource Committee of the Legislature-Parliament had directed the government to include development banks and finance companies as eligible financial institutions to extend agriculture loans to facilitate the targeted farmers.

Earlier, only commercial banks were authorised to extend such loans.

With this directive, agriculture loan will be available from 84 development banks, 53 finance companies and their branches, apart from 30 commercial banks and their branches.

Commercial banks, however, started extending agriculture loans to the farmers after the central bank issued a circular in this regard on October 21, last year.

Banks and financial institutions (BFIs) are extending agriculture loans to eligible farmers at less than six per cent interest rate. There is a provision of central bank reimbursing the subsidised interest rate by up to 400 basis points to the respective BFIs.

The amended guideline has said farmers engaged in bee-keeping, wheat, buckwheat and perilla seeds farming are also eligible to borrow under this scheme. Earlier, vegetables, fruits, medicinal herbs, sugarcane, dairy, mushroom, black cardamom and ginger farming as well as those involved in floriculture, livestock development and slaughterhouse operation were covered in this scheme. The earlier guideline had also incorporated farmers engaged in production of high quality seeds, and processing and distribution of agricultural products at commercial scale.

With the amendment, BFIs are now allowed to extend loan of up to Rs 30 million for cold storage without needing central bank’s approval.

While BFIs can extend loan of up to Rs 10 million to a single borrower, the earlier guideline required them to take permission from the central bank for funds exceeding that amount, irrespective of the purpose.

“The central bank can extend permission upon getting approval from the Coordination and Monitoring Committee formed under the NRB deputy governor,” the guideline said.

The committee comprises joint-secretary of the Ministry of Finance, joint-secretary of the Ministry of Agricultural Development and president of Nepal Bankers’ Association as members. Executive director of the Regulation and Supervision Department at NRB would be the member secretary of the committee.

As per the guideline, BFIs can maintain up to Rs one billion of its loan portfolio under this scheme. The fiscal policy of this year has stated that youth involvement in agriculture sector would help the country become self-reliant in production of agro products and discourage them from seeking overseas employment opportunities.

The government has earmarked a budget of Rs one billion for the scheme for fiscal 2014-15 to reimburse the BFIs against interest rate subsidy.

Source:THT