NRB makes bank lending in energy, agri sectors must
KATHMANDU, JAN 17 -
At a time when banks and financial institutions (BFI) are giving low priority to the agriculture sector, Nepal Rastra Bank (NRB) has made it mandatory for commercial banks to make 10 percent of their total lending to the agriculture and energy sectors within the next three years. The central bank issued a new directive to this effect on Monday.
The move comes almost three weeks after Prime Minister Baburam Bhattarai said that the government will not ‘remain silent’ on the non-expansion of bank credit to rural areas where agriculture is a key economic activity. “The government will not adopt harsh measures without holding consultations with stakeholders concerned, but will also not remain silent if they fail to find ways to expand credit to these areas,” Bhattarai had said while addressing a workshop on ‘Status, Potential and Challenges of Financial Services in the Development of Nepal’s Agriculture Sector’ organised by the NRB on December 25.
As per NRB’s new directive, commercial banks have to increase their lending to the agriculture and energy sectors to 10 percent by mid-July 2014.
Banks having less than 10 percent exposure in these sectors need to make an annual increment of 2 percent in total by considering fiscal year 2010-11 as the base year.
Top NRB officials say such a provision was made to develop and expand the agriculture and energy sectors. “Nepali economy is highly dependent on agriculture; so we decided to increase investment there,” said Bhasker Mani Gnawali, the NRB spokesperson. “Likewise, with the country witnessing acute power shortages, it was necessary to facilitate the energy sector with adequate investment.”
Lending to the agriculture sector includes a wide range of sub-sectors like crops and crop service, tea and coffee, tobacco, jute, livestock and animal husbandry, slaughter house, forest and irrigation. Similarly, lending to energy sector includes hydro-electricity, renewable energy and other services related to electricity. Though bankers welcomed the NRB move and termed it a forward looking policy, they were sceptical of its implementation due to lack of infrastructural support, especially in the agricultural sector.
“Our agro-industry does not have insurance coverage and investment will carry a high risk,” said Ashoke Rana, the president of Nepal Bankers’ Association. “Hence, the central bank should come up with efficient mechanisms to facilitate such lending.”
In a bid to make implementation of the directive effective, NRB has also provisioned that only those commercial banks complying with the directive will be eligible to get credit facility at zero percent interest rate. “If banks fail to comply with the directive, the central bank will take strong action against them,” Gnawali said.
The central bank has said that refinancing facility will be provided to banks for their agro-loan at 6.5 percent. “The NRB announced such a facility so that banks can be more comfortable to lend in the agriculture sector,” Gnawali said.
While lending under such facility, banks must not exceed the lending rate beyond 10 percent, while the time frame for the lending is six months in maximum. BFIs should provide loans to these sectors at not more than 4.5 percent.
Over the last three decades, the sector received the highest percentage of lending from banks (24.8 percent) in the fiscal year 1992-93. Since then, bank credit in the sector continued to decline and the figure in 2010-11 stood at just 2.7 percent.
Source: Kantipur
