While some bankers have called Nepal Rastra Bank´s (NRB) step "progressive", others have likened it as a move that contravenes with the open market policy. [break]
The directive issued by NRB on Monday has instructed all BFIs to increase their exposure to agriculture and energy sectors to at least one-tenth of their loan and investment portfolio. The directive has been issued at a time when banks are flush with cash but have not been able to lend the money due to lack of "good borrowers and viable projects".
The central bank has defined agriculture sector as areas that deal with all forms of crops, including cash crops, namely tea, coffee, tobacco and jute. This sector also includes livestock, livestock slaughter house, forestry, irrigation, fish farming and other agriculture related services. Energy sector, in the meantime, has been defined as areas that deal with hydropower and renewable energy.
Although the central bank has set mid-July 2013 as the deadline to meet the target, it has said commercial banks that fail to meet the goal within mid-July 2012 will not be eligible for NRB´s zero interest loans that it has been providing for opening branches in remote districts.
PK Mohapatra, CEO of Everest Bank, called the central bank´s decision "progressive and timely", citing "inclusive banking" is the need of the day.
He, however, said the government´s attempt to attract investments in agriculture and energy sectors would have been more effective if it had come along with "backup facilities" like credit insurance for crops and livestock. "This would have encouraged BFIs to channel money into these sectors without any fear," he said.
Contrary to Mohapatra´s statement, Anil Gyawali, CEO of Nabil Bank, said though it is central bank´s responsibility to guide BFIs, creating pressure to meet mandatory lending targets may cause one to lose sight and ultimately commit mistakes.
"We all know two largest state-owned commercial banks (Nepal Bank Limited and Rastriya Banijya Bank) have huge chunks of non-performing loans because these banks were always being directed to extend credit to one or the other sector," he said, indicating, the history may repeat again with other banks because of the central´s banks latest directive.
He, however, said he is not against development of agriculture and energy. "Of course, there is need for developing these sectors, but we should not forget BFIs are playing with depositors´ cash and we have to protect their interest by extending credit after assessing risks and commercial viability of projects," he explained.
Many bankers that Republica contacted, however, refused to comment on record. They only said: "All banks must abide by the central bank´s directive."
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