Bank loans to farm sector jump 65pc

KATHMANDU, OCT 03 -

Commercial banks have been responding heartily to Nepal Rastra Bank’s ( NRB ) call to increase lending to the agriculture sector. Loans to the farm sector jumped 64.9 percent in fiscal 2011-12 compared to the previous year.

According to the central bank’s statistics, lending increased to Rs 23.4 billion in 2011-12 from Rs 14.19 billion in 2010-11. Credit went to farming service, tea, animal farming, forestry, fishery and other agricultural activities and services.

The current fiscal year’s monetary policy has directed commercial banks to increase their lending to the agriculture and energy sectors to 10 percent of their total lending. They are required to reach this figure by mid-July 2014, according to the NRB directive.

Central bank officials are elated by the change in lending trends. “Before the directive was issued, lending to agriculture and agriculture based industries accounted for less than 3 percent of the total lending portfolio,” said Min Bahadur Shrestha, executive director at NRB . “Currently, the lending is well above 4 percent.” He added that the increase may not be large considering the small base of agro lending, but it is a significant rise. More encouraging has been the changed approach of banks towards financing agro-based businesses. Everest Bank has even opened a separate branch to concentrate on such lending. It recently launched a branch in Rajbiraj named Krishi Udhyam Bikas Sakha with a special mandate to concentrate on lending to the farm sector.

“We have identified agriculture as one of the very important lending avenues, and we are coming up with better ways to extend loans to the sector,” said PK Mohapatra, CEO of Everest Bank. “We have already given lending targets to our branches, mostly in the Tarai region.” He added that agro sector lending accounts for 3.2 percent of Everest Bank’s total lending portfolio of Rs 36 billion.

The bank has directed its branch in Janakpur to lend to fisheries while the office in Chitwan is specialising in lending to the poultry industry. Likewise, the Rajbiraj branch will concentrate on lending to paddy and wheat farming and the Birgunj branch will finance sugarcane farming. Mohapatra said that they had calculated the cost of various factors of production in order to make appropriate lending based on the project. “Currently, we are financing up to 75 percent of the project,” he said.

Likewise, Himalayan Bank, whose agro lending amounts to 4 percent of its total lending, is seeking help from International Finance Corporation (IFC) to increase focus on the sector. “We have proposed to IFC to guarantee 50 percent of our total lending which will double our lending capacity by improving our capital adequacy ratio,” said CEO Ashoke Rana. NRB has placed agro loans in the 100 percent risk weight category.

Similarly, Kist Bank is a front runner in extending agro lending. It is more inclined towards micro agro projects operated by women, according to BN Gharti, CEO of Kist Bank. “Currently, agro lending accounts for 5 percent of our portfolio,” said Gharti.

Meanwhile, the country’s largest bank Rastriya Banijya Bank has also planned to increase lending to agriculture and energy by Rs 5 billion this year.

Although there is new enthusiasm among banks to increase lending to the farm sector, the central bank is not content with the steps they have taken so far. Speaking at a function organised by the Nepal Finance Companies Association on Sunday, NRB governor Yubaraj Khatiwada said that banks were still reluctant to invest in the agriculture sector although they ask the central bank for advice on where to lend.

Rana, who is also the president of the Nepal Bankers Association, said that most of the banks would meet the target set by the central bank by mid-July 2014.

According to NRB figures, bank lending to the farm sector has gone down noticeably after the country adopted a liberal economy policy. Credit issue to agriculture stagnated during the period 2008-09 to 2010-11. A study of lending trends during the last three decades reveals that the farm sector received the highest percentage of bank loans of 24.8 percent in 1992-93. Since then, credit has continued to decline with the figure in 2010-11 standing at 2.7 percent.

Agriculture lending

Fiscal year    Credit     Change (%)

2011-12      Rs 23.4b    64.9

2010-11      Rs 14.19b    -0.7

2009-10      Rs 14.29b    6.8

2008-09      Rs 13.88b    -3.6

Source: The Kathmandu Post