More financial institutions lending to deprived sector
KATHMANDU:
The rate of compliance of the banks and financial institutions (BFIs) on deprived sector lending has seen an improvement as they are opting for wholesale lending to microfinances.
In the last fiscal year, a total of five banks and financial institutions were penalised for not fulfilling the deprived sector lending obligation. Last fiscal year they paid around Rs 9.6 million as fine for not meeting the deprived sector lending requirement, according to Nepal Rastra Bank (NRB)’s statistics.
“The rate of compliance has gone up in the recent times as they can lend the portion to class ‘D’ financial institution that lends to the target group,” said spokesperson for the central bank Bhaskar Mani Gyanwali.
In the fiscal year 2009-10, some 52 banks and financial institutions were fined for not issuing loans to the deprived sector as prescribed by the central bank. Of these, three were commercial banks that paid Rs 2.6 million penalty, while a fiscal year before that also three commercial banks had paid Rs 15.4 million as penalties.
The deprived sector lending refers to small loans that are lent to poor and rural people for small projects with minimal collateral in order to promote formal banking even among the rural and poor areas.
From the current fiscal year, the central bank has scaled up the portion for the banks and financial institutions to be disbursed of their total loan portfolio in the deprived sector as directed lending. The commercial banks have to lend 3.5 per cent of their total loans to deprived sector while development banks and finance companies’ loan portfolio should contain three per cent and 2.5 per cent, according to Monetary Policy for the current fiscal year 2011-12.
The banks and financial institutions can either provide direct lending to the sectors recognised as deprived or give bulk loan to micro finance institutions that provide micro credits up to Rs 150,000 to the underprivileged groups. The failure to meet such an obligation results in the financial penalty for the bank, computed on the basis of highest published lending rate of the bank. The banks and financial institutions that have been subjected to penalties and fines due to inability to fulfill deprived sector lending requirement within the previous fiscal year do not qualify to open new branches and even extension counters.
“Moreover, those not abiding by the central bank regulation will not be able to enjoy facilities provided by it,” Gyanwali added.
The banks and financial institutions, however, are not happy to lend the high cost fund at minimal rate of interest to the high risk sector as directed by Nepal Rastra Bank. “At present, we are getting deposits by giving out 8-14 per cent interest rate and to fulfill the central bank’s obligation, we have to lend it on minimal interest rate,” said president of Finance Company Association of Nepal Rajendra Man Shakya.
Source: THT
The rate of compliance of the banks and financial institutions (BFIs) on deprived sector lending has seen an improvement as they are opting for wholesale lending to microfinances.
In the last fiscal year, a total of five banks and financial institutions were penalised for not fulfilling the deprived sector lending obligation. Last fiscal year they paid around Rs 9.6 million as fine for not meeting the deprived sector lending requirement, according to Nepal Rastra Bank (NRB)’s statistics.
“The rate of compliance has gone up in the recent times as they can lend the portion to class ‘D’ financial institution that lends to the target group,” said spokesperson for the central bank Bhaskar Mani Gyanwali.
In the fiscal year 2009-10, some 52 banks and financial institutions were fined for not issuing loans to the deprived sector as prescribed by the central bank. Of these, three were commercial banks that paid Rs 2.6 million penalty, while a fiscal year before that also three commercial banks had paid Rs 15.4 million as penalties.
The deprived sector lending refers to small loans that are lent to poor and rural people for small projects with minimal collateral in order to promote formal banking even among the rural and poor areas.
From the current fiscal year, the central bank has scaled up the portion for the banks and financial institutions to be disbursed of their total loan portfolio in the deprived sector as directed lending. The commercial banks have to lend 3.5 per cent of their total loans to deprived sector while development banks and finance companies’ loan portfolio should contain three per cent and 2.5 per cent, according to Monetary Policy for the current fiscal year 2011-12.
The banks and financial institutions can either provide direct lending to the sectors recognised as deprived or give bulk loan to micro finance institutions that provide micro credits up to Rs 150,000 to the underprivileged groups. The failure to meet such an obligation results in the financial penalty for the bank, computed on the basis of highest published lending rate of the bank. The banks and financial institutions that have been subjected to penalties and fines due to inability to fulfill deprived sector lending requirement within the previous fiscal year do not qualify to open new branches and even extension counters.
“Moreover, those not abiding by the central bank regulation will not be able to enjoy facilities provided by it,” Gyanwali added.
The banks and financial institutions, however, are not happy to lend the high cost fund at minimal rate of interest to the high risk sector as directed by Nepal Rastra Bank. “At present, we are getting deposits by giving out 8-14 per cent interest rate and to fulfill the central bank’s obligation, we have to lend it on minimal interest rate,” said president of Finance Company Association of Nepal Rajendra Man Shakya.
Source: THT
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