Loan to agro sector increases
KATHMANDU, MAR 07:
The agriculture sector seems to have caught the fancy of financial institutions of late as the amount of loans extended to the sector has gone up by almost 30 per cent in the first half of the fiscal year.
Financial institutions seem to have warmed up to agro projects as amount of financing received by sector has more than doubled in the last one and a half years. Financial institutions that had lent Rs 16.5 billion until July, 2011, have increased size of agro loans in its lending portfolio to Rs 37.08 billion by January, 2013, according to banking data published by central bank.
Financial institutions accelerated lending to the agriculture sector after Nepal Rastra Bank (NRB) directed them to float a minimum of 10 per cent of their total lending to agriculture and energy sectors. Those commercial banks that have lent less than 10 per cent in these sectors will have to reach the requirement by the end of fiscal year 2013-14.
At present, agro loans comprise of less than five per cent of total loan portfolio of financial institutions. “Agriculture has emerged as a
lucrative sector for financial institutions,” said spokes person for NRB Bhaskar Mani Gyanwali.
The central bank has recognised cereal crops, crops-related services, tea, coffee, tobacco, jute plants, forestry, irrigation, animal husbandry, poultry and fishery under agriculture. “The central bank has always encouraged financial institutions to provide loans to agro projects since agriculture is a predominant sector in Nepal,” he added.
To promote lending to agriculture sector, NRB is providing refinancing facilities for agriculture at 6.5 per cent interest as it does with hydropower loans.
Banks that obtain the refinance facility to finance hydro projects cannot charge the projects more than 10 per cent interest.
“There is immense scope for financing in agriculture and energy sectors but most banks used to concentrate on unproductive sectors — especially real estate — previously. By venturing into these sectors, banks themselves diversify their exposure,” said Gyanwali.
Although agriculture contributes about 35 per cent to the total gross domestic product of Nepal, financing to the sector has remained out of the radar of banks for their low commercial viability and higher risk.
However, the recent introduction of agriculture insurance is expected to boost the whole agro sector and stimulate agro financing.
Insurance Board (IB) has made agro insurance mandatory for non-life insurance companies since January 14. Non-life insurance companies will from now on have to insure paddy, vegetables, fruits, potatoes, livestock and poultries under the heading. “Companies are preparing a working plan for the implementation of the agro policies in the initial phase,” said chairman of IB Prof Dr Fatta Bahadur KC.
The agriculture sector is risky due to its dependence on weather conditions and similar uncontrollable factors. Introduction of agro-insurance is expected to stimulate lending to the sector, as banks will be assured that the loans will not go bad.
Source: THT
