NRB fixes minimum loan requirement for development banks, finance companies, too

ShareSansar, October 20:

Nepal Rastra Bank has asked development banks and finance companies to raise the level of their lending to the productive sector to 15 percent and 10 percent respectively by mid-2016.

The productive sector includes agriculture, energy, tourism and small and cottage industries.

So far, only commercial banks were required to ensure that a certain percentage of their credit issue went to the productive sector, according to The Kathmandu Post.

The central bank has already directed commercial banks to increase their lending to the productive sector to 20 percent by mid-July 2015.

Meanwhile, B and C class BFIs have been ordered to prepare annual action plans to implement the directive and set half-yearly targets in a way that can be monitored.

The central bank has also increased the required level of lending to agriculture and energy to 12 percent from the earlier 10 percent for commercial banks.

However, A class banks have to maintain their lending to these two sectors at 10 percent within the current fiscal year, according to the latest NRB directive.

The central bank has also defined agriculture sector loan, energy loan, tourism sector loan, cottage and small industry loan which have been categorized as productive sector loans.

Meanwhile, the central bank has also changed the provisions regarding establishment of new bank branches or head offices in the Kathmandu valley. Henceforth, banks and financial institutions (BFIs) will have to open three branches outside the valley before they will be allowed to open one branch in the valley. Earlier, they were allowed to set up branches in the valley after opening two branches elsewhere in the country.

Similarly, of the two remaining branches, at least one should be located outside the perimeter of district headquarters or municipalities.

Meanwhile, NRB has also told BFIs that they can provide loans worth up to Rs 1 million to productive agrarian enterprises related to coffee, oranges and tea besides animal husbandry and milk production firms against project collateral.

Likewise, the central bank has allowed BFIs to categorize defaulted loans to cement factories as good loans if they are rescheduled or restructured. Earlier, this facility was provided to loans that went to hydropower, cable cars and other national priority infrastructure projects.

Meanwhile, micro-finance institutions (MFIs) not using borrowed funds from other BFIs to issue loans to targeted populations will be fined on the basis of the existing bank rate fixed by the central bank on a quarterly basis.

The monetary policy has kept the bank rate at 8 percent. The amount of the fine will be calculated against the lower remaining credit amount of the previous and latest quarters.