A total of 32 commercial banks extended loans of Rs 7.27 billion in the first 10 months of the current financial year, marking a growth of 51.3 percent since mid-July, Nepal Rastra Bank (NRB) figures show. In the same period last year, credit extended by commercial banks to the agricultural sector had gone down by Rs 744.4 million.[break]
Many agree that credit flow to the sector has gone up lately because of the central bank´s mandatory provision that requires all banks and financial institutions to extend at least 10 percent of the total loan to agricultural and energy sectors.
Following introduction of the directive, Citizens Bank, for instance, has introduced micro loans of up to Rs 500,000 for farmers and others engaged in agro-based businesses - a product which, according to the bank, has been well received by the market. Likewise, Grand Bank has also sanctioned credit of around Rs 200 million for slaughterhouses so far this fiscal year.
But apart from handful of these banks, many are still struggling to increase their exposure to the agricultural sector due to “lack of reliable clients”, who do not turn into defaulters.
“That´s why our lending to the agri sector has only gone up marginally,” high-ranking officials of top banks like Nabil, Nepal Investment and Everest told Republica, indicating that their growth figures “do not substantiate the growth shown by NRB data”.
“If there was such an increment, it should have reflected in our balance sheets as well, as we are banks with huge portfolios,” they said.
Although bank-wise figures are not available, the central bank´s data shows that commercial banks had kicked off this year extending a credit of Rs 217.1 million to the agricultural sector in the first month between mid-July and mid-Aug. This figure went up to Rs 1.98 billion by the third month, before declining to Rs 1.03 billion in the fifth month of the financial year.
But by mid-January, loans absorbed by the sector had soared to Rs 3.28 billion. This growth, seen in the sixth month of the fiscal year through mid-Dec and mid-Jan, has raised eyebrows of many bankers, as this was the time when the central bank had issued a directive instructing all banks and financial institutions to extend at least 10 percent of total loans to agri and energy sectors.
Since that time credit extended to the sector has almost doubled to Rs 7.27 billion -- almost 11% of total loans issued by banks in 10-month period and 33.87% of total loans extended to the agriculture sector so far.
“The figure does not seem logical,” a high-ranking official of Everest Bank told Republica. Officials of Nepal Investment Bank and Lumbini Bank also expressed doubt over the pace at which changes took place.
“It looks unnatural as effects of policy shifts take some time to trickle down to the market,” they said, expressing fear that banks may have reclassified loans to meet the target set by the central bank.
If fears expressed by bankers are real then possibilities of moving loans from under the heading of, say, ´real estate´ to ´agriculture´ cannot be ruled out. “If that is the case, the misconduct could prove to be costly for the banking sector,” said Sudhir Khatri, CEO of Grand Bank, urging the central bank to “immediately launch investigation” into the matter.
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