Agro-based projects to be provided collateral free loans

KATHMANDU:

Agro-based projects can from now onwards obtain loans based on the project viability without the backing of any collateral.

The central bank has asked financial institutions to provide loans of up to Rs one million for projects such as agriculture business activities like coffee, orange, tea, livestock and dairy products, issuing a circular today.

“This move will help people borrow from financial institutions even if they do not have any property to pledge but have a viable business plan,” informed spokesperson for Nepal Rastra Bank (NRB) Bhaskar Mani Gyanwali.

NRB had already announced earlier that it will introduce a provision that will avail specified amount of loans against the project itself as collateral based on the potentiality of project.

Likewise, it has also increased the portion of mandatory lending to energy and agro sectors by the end of next fiscal year.

According to the circular, commercial banks will have to maintain at least 12 per cent credit flow to agriculture and energy sectors by mid-July 2015.

However, these class ‘A’ banks have to increase lending to both agro and energy to up to 10 per cent of total lending by the end of the current fiscal year, as per existing regulation.

Of the total loan portfolio of financial institutions, credit flows to agriculture and energy sectors stood at 4.2 per cent and 1.9 per cent, respectively, by the end of last fiscal year.

Two years ago, NRB has asked commercial banks to maintain 20 per cent of total credit to the productive sector by mid-July 2015. NRB has identified sectors such as agriculture, energy, tourism and Small and Medium Enterprises under productive sector.

Now, even development banks and finance companies will have to increase lending to the productive sector. By mid-July 2016, class ‘B’ development banks will have to increase lending to these sectors to 15 per cent of its total loan portfolio, while class ‘C’ finance companies have to lend up to 10 per cent of total lending to these sectors.

“This provision will help channel financing to the productive sector which is imperative for the long-term development of the country,” pointed out Gyanwali.

Moreover, these financial institutions will have to report to the central bank every six months, with plans to increase loans to the specified sectors.

Source: THT