Development banks need to finance sustainable projects
KATHMANDU, MAR 17:
Experts have expressed that development banks should be more focused on financing projects that could propel sustainable development.
“The objective of development banks has to be investment in the development process,” said Nepal Rastra Bank (NRB) governor Dr Yubaraj Khatiwada, during an interaction programme ‘Economic Development and Role of Financial Sector’ organised by Nepal Development Bankers Association here today.
He emphasised that banks need to seek entrepreneurs and viable projects for financing instead of waiting for them to come and ask for loans referring to the current surplus liquidity situation.
“Development banks need to work as their name suggests. They need to be more focused on financing projects that will lead to sustainable development,” opined economist Dr Chiranjibi Nepal, who was today appointed as a board member of the central bank.
He emphasised that financial institutions need to finance the real sector but at the same time the real sector also needs to be producing value added products that will be sustainable in the long run, adding “if the business plan is based on short-term gain then it will be imprudent for banks to invest in such projects.”
“When the Bafia categorised financial institutions into three categories, development banks were supposed to be dedicated to lending to development projects such as hydro, infrastructure but now the purpose has deviated,” pointed out deputy governor of NRB Maha Prasad Adhikari. “All financial institutions are concentrating on increasing income instead of being an agent in bringing development.”
“NRB should allow development banks to specialise in a specific sector if they have capital,” said president of Nepal Development Bankers Association Manoj Goyal. “Despite the categorisation, there is not much difference between the financial institutions due to the similarity of work portfolios.”
The size of capital might be a constraint in terms of lending capacity but the difference in classes does not make one class stronger than the others by default, he said, adding that financial institutions need to finance more projects but at the same time entrepreneurs seeking funds also need to be transparent and ready to bear the cost of project financing.
Similarly, vice president of Confederation of Nepalese Industries Hari Bhakta Sharma asked the financial institutions to finance projects that have saleable business plans and which are sustainable even in the absence of collaterals.
He attributed the contraction in the manufacturing sector lately due to the absence of easy availability of finances and due to the lack of innovation.
Six development banks in pipeline
Six development banks are still seeking licenses from the central bank to start operations. “Though Nepal Rastra Bank (NRB) has not accepted any application for establishing commercial banks, development banks or finance companies for the last two years, there were 11 development banks that had applied for a license before the provision was introduced,” informed deputy governor of NRB Maha Prasad Adhikari. “Five of those have stopped pursuing for the approval but six are still going through the procedures,” he added. There are 88 development banks operational as of mid January.
Source: THT
