Banks get Rs 900m under NRB refinancing facility
KATHMANDU, APR 01 -
Commercial banks have taken Rs 900 million till date under the central bank’s refinancing facility for the hydropower sector.
Last December, Nepal Rastra Bank (NRB) directed BFIs to provide refinancing facility to hydropower projects of up to 25 MW for a maximum of six months in response to complaints by developers about high interest rates jeopardizing their projects.
In order to encourage BFIs to lend more to hydropower projects, the central bank had made this arrangement of a higher spread rate for them than other refinancing windows. The central bank is providing funds to BFIs at an annual interest rate of 6.5 percent under the refinancing facility designed for hydropower projects in distress. BFIs are required to issue credit to projects at an interest rate not exceeding 10 percent.
More than two dozen hydropower projects promoted by the private sector had knocked on the government’s door seeking relief measures in November last year.
A number of projects including the Tama Koshi, Modi and Mai Khola had formally asked the Ministry of Energy to declare them sick and provide a relief package such as relaxation in bank rates.
The fixed tariff rate in the Power Purchase Agreement (PPA) and ever increasing cost of funds had been a source of worry to project developers and investors.
According to a senior NRB official, the refinancing facility for hydropower projects has encouraged BFIs to lend to productive sectors. “Around Rs 900 million of lending within a span of four months is a promising figure,” said the official.
Prime Commercial Bank has been at the forefront in obtaining such refinancing facility. Prime’s general manager Sanjeev Manandhar said that they had provided refinancing worth around Rs 400 million to two projects being financed by the bank.
Likewise, Global Bank recently provided refinancing worth Rs 70 million to the Modi Khola hydropower project. Global CEO Ratna Raj Bajracharya said that they were ready to offer this facility to all their clients involved in hydropower development.
“This kind of refinancing facility is very useful for banks when the liquidity situation is tight and the cost of funds is high,” said Manandhar. “However, with BFIs being in a comfortable liquidity position presently, the facility is less desirable to banks although borrowers are benefiting from it.” He added that since the refinancing facility provided to hydropower is included in their credit to deposit (CD) ratio, it will increase their ability to do business.
However, some bankers were sceptical about the refinancing facility as they said the time frame of six months was very short compared to the long gestation period of hydropower projects. “Also, NRB’s directive doesn’t guarantee rollover of the funds after six months,” said Bhuvan Dahal, chief investment officer at Nabil Bank.
An NRB official said that laws force the central bank to stipulate a short credit period. “Since our aim is to channelise funds to the energy sector, we will perpetuate refinancing through rollover,” said the official. “BFIs can again apply for refinancing after clearing the loan within six months.”
Some bankers have said that the refinancing facility being provided by the central bank was on the verge of becoming obsolete. “The time has come when we are about to get deposits at less than 6.5 percent interest,” said Ajay Shrestha, CEO of the Bank of Kathmandu. “In this situation, the refinancing facility is not desirable.”
Source: Kantipur
