Bankers say will proceed cautiously

Though the government has announced to provide loans against academic certificates, bankers have said that such arrangement could be possible only if the government stands as guarantor for such loans. Unveiling its policies and program for the coming fiscal year on May 9, the government had said that concessional loan will be provided to unemployed youth on the basis of project proposal and by submitting their academic certificates as guarantee. Though the government is yet to bring working procedure to roll out such loans, bankers have said that they would proceed cautiously. "This is a very good plan. But the loan that we float is the money borrowed from depositors. This plan will become successful only if Nepal Rastra Bank issues a directive, stating that Deposit and Credit Guarantee Corporation will returns at least our principal if a borrowers misses payment of three installment"," Anil Keshary Shah, vice president of Nepal Bankers Association, told Republica. "If the banks are assured that at least their principal will be returned in case any borrower goes default, we do not have any problem at all in extending such credit. This way our depositors also become saf"," he added. Bankers say that the central bank should issue a directive, laying down rules on how much a bank can lend without any collateral. The government has said that such loans will be of concessional type. To float concessional loans, bankers say that the government either has to provide refinance facility or create a subsidy fund to reimburse any subsidy that bank and financial institutions provide. Earlier, the government led by Nepali Congress had introduced a subsidized agro loans to farmers at six percent interest rate. However, some complain that BFIs have been largely reluctant to extend such loans. Though the scheme was announced in the budget for Fiscal Year 2014/15, only 2,151 farmers have obtained Rs 1.59 billion worth of such loans as of mid-April. Many think that loans floated to unemployed youths without any credit records carry high risk. "Apart from the issue of procedures, there are also issues related to provisioning of such loans," said a banker. BFIs generally float loans against collateral, usually fixed assets like land and buildings which, they think, can help to recover their loans in case the borrowers default on loans. Banks are also wary of willful defaulters who think loans issued under government schemes will be eventually waived off. Source: Republica