Demand for refinance fund rises on skyrocketing interest rates, shortage of lendable funds

Published On: May 16, 2019 12:57 PM NPT By: Republica  | @RepublicaNepal

Outstanding refinance funds amounted Rs 24.54 billion in mid-March, up from Rs 12.94 billion a year earlier

KATHMANDU, May 16: The use of refinance facility provided by the Nepal Rastra Bank (NRB) has increased in the first eight months of the current fiscal year – FY2018/19 as private sector sought more concessional loans under this scheme amid shortage of lendable fund in banking sector and skyrocketing interest rates.

According to data compiled by the central bank, the outstanding refinance amounted to Rs 24.54 billion in the first eight months of the Fiscal Year 2018/19, up from Rs 12.94 billion in the same period in FY2017/18.

The NRB has been providing refinance facility, aiming to expand credit to the productive sector as well as to promote export. According to the data, the NRB provided a total of Rs 20.38 billion in general refinance and Rs 1.48 billion in export refinance as of mid-March. 

Bankers say that they are overwhelmed with the demand for refinance fund from the private sector amid shortage of lendable funds in the banking system and skyrocketing interest rates. “Until three years ago, there used to be only few commercial banks that used to seek the refinance fund from the central bank. However, other banks are also demanding the facility now due to credit crunch,” Bhuvan Dahal, CEO of Sanima Bank Ltd, told Republica.

The refinance fund is aimed at providing financing to priority sectors, including manufacturing business, which help in creating employment opportunities, supporting economic growth and helping to reduce trade deficit.

The central bank channelizes the refinance fund through banking institutions at 4 percent interest rate, while banks are allow to charge up to 8 percent to borrowers. However, the export refinancing rate is 1 percent and BFIs can charge up to 3 percent interest rates to borrowers under this scheme.

Amid high demands for concessional loans, banks have to queue up at the central bank to get funds for their clients. As loans disbursed under this facility do not hit the credit to core capital plus deposit (CCD) ratio of banks, they urge central bank to increase the size of the fund so that the private sector do not have to suffer from shortage of resources during credit crunch.

Due to rise in demands amid shortage of lendable fund in the banking system, the central bank has increased the size of the refinance fund to Rs 35 billion in the current fiscal year from Rs 20 billion a year earlier.

“There has been a rise in the number of applications for the refinance fund. We approve them based on priority,” said Laxmi Prapanna Niroula, the spokesperson for the NRB.

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