Banks deny subsidized farm loans, cite procedural unclarity

KATHMANDU, Jan 2:

Even five and a half months after the government announced agricultural loans for youths at a concessionary interest rate of six percent and two months after Nepal Rastra Bank (NRB) introduced the working procedures for issuing such loans, not a single individual has been able to receive a loan under the scheme.

The government had announced an interest rate subsidy on agro loans in the budget for fiscal year 2014/15 that it unveiled in mid-July. It pledged such loans to young farmers at a 6 percent interest rate.

Following the government´s announcement, NRB -- the regulatory central bank--had issued the relevent directives to licensed banks and financial institutions (BFIs) on October 28, 2014. Commercial banks cannot charge more than 6 percent interest on agro loans covered by this arrangement. Banks can issue loans of a maximum of Rs 10 million per farmer for agro businesses in ´rural areas´.

Gagan Thapa, the chairman of parliament´s Agriculture and Water Resource Committee, said that he tried to elicit information about the loans from 15 or 16 bank branches in various districts. However, none of the banks showed interest in discussing the loan requests he made ´as an ordinary farmer´. Thapa was speaking at a meeting organized by the committee on Wednesday to discuss progress uinder the subsidized loan scheme.

The banks have been denying the loans to youths, stating that that the working procedures which NRB had introduced two months ago were in the process of being revised.

“The existing working procedures lack clarity about the reimbursement of the four percent subsidy that the government later provides the banks that offer such loans to farmers. Once the amended working procedures come into effect, the banks will start sanctioning such loans,” said Ratna Raj Bajracharya, vice-president of Nepal Bankers Association, at discussions at the Agriculture and Water Resource Committee on Thursday. He, however, said that the banks were offering loans to the agriculture sector as required by NRB. NRB requires a commercial bank to float at least 12 percent of its total loan portfolio in the agriculture and energy sectors.

“We cannot be going out to find borrowers for our loans. It´s up to the government to create awareness so that the farmers come to the bank to ask for the loans,” Bajracharya told Republica.

A revision draft of the working procedures is currently awaiting the approval of the cabinet. The revised draft eases the age restriction for the subsidized loans. Likewise, development banks, finance companies and microfinance companies will also be able to extend subsidized loans once the revised working procedures get cabinet approval.

Under the existing procedures, only people within the age bracket of 21 to 45 years are entitled to the subsidized loans and only class-A licensed banks can issue such loans.

Lawmakers vented their ire at the banks´ reluctance to issue the subsidized loans to farmers. “If the banks do not adhere to the regulator´s directives and issue the subsidized loans to farmers, there is no point granting license to these urban-centered, profit-minded lenders,” a lawmaker said, demanding action against banks denying such loans.

NRB Governor Yuba Raj Khatiwada, meanwhile, said that banks are bound to follow the directives of NRB. “We have been using gemtle language to tell the banks to comply with the directives as taking action against them would not by itself yield any results,” he said. “The banks cannot say that they are not floating the loans just because revised working procedures are on the cards. They should issue the loans on the basis of the existing directives until the revised directives come into effect,” he added.

According to NRB, 12 types of agro businesses, including vegetable production, processing and storage; seed production, processing and storage; floriculture; and livestock farming, are eligible for such loans.

Baikuntha Aryal, joint-secretary at the Ministry of Finance, informed the committee that the ministry will table the revised working procedures at the cabinet within a week.

Source: Republica