NRB efforts in vain as agro loans growth shrinks

Published On: August 31, 2016 01:50 AM NPT By: Republica  | @RepublicaNepal

Loan disbursement to agriculture sector increased by Rs 13.63 billion in FY2015/16 
KATHMANDU, Aug 31: Bank and financial institutions (BFIs) disbursed loans worth Rs 78.79 billion to the agriculture sector in the last fiscal year.

Loan flow toward agriculture sector increased by Rs 13.63 billion, or 20.9 percent, in the review period, compared to a rise of Rs 14.25 billion in 2014/15, shows statistics of Nepal Rastra Bank (NRB).

BFIs had extended loans worth Rs 65.16 billion in the agriculture sector in 2014/15.

Farming/Farming Service, Tea and Animals Farming/Service sub-sectors in the agriculture sector received Rs 10.35 billion, Rs 3.42 billion and Rs 28.76 billion, respectively, in 2015/16. BFIs have floated total loans of Rs 2.01 billion in Forest, Fish Farming, and Slaughter sub-sector, 'Other Agriculture and Agricultural Services' received Rs 34.25 billion in loans in the review period.

However, the exposure of BFIs toward agro sector has come down compared to the previous fiscal year despite the efforts of the government and the central bank to prod the lenders to ramp up credits in the agriculture sector.   

The increment in loans to the agriculture sector is even lower than the overall credit growth of BFIs toward the private sector. According to the data, credit to the private sector increased by 23.7 percent in the review year compared to a growth of 19.8 percent   in   the   previous   year.

Total loans of BFIs increased by Rs 319.77 billion in the last fiscal year to reach Rs 1,362.09 billion, NRB data shows.

Of the BFIs' credit exposure to private sector, credit to the transport, communication and public services sector increased by 39.8 percent in the review year compared to 27 percent in the previous fiscal year. Likewise, credit to the wholesale and retail trade sector, and finance, insurance and fixed assets sector increased 25.8 percent and 25.9 percent, respectively, compared to an increase of 21.8 percent and 18.3 percent.

As the banks have become reluctant to float loans toward agriculture and farming sector, NRB has made it mandatory for the commercial banks to float a certain percent of their loans to the productive sector. According to a new requirement announced by the central bank through the Monetary Policy for Fiscal Year 2016/17, commercial banks have to make at least 15 percent of their lending in energy and agriculture sector.

Similarly, the NRB has been providing refinancing facility for commercial banks to provide subsidized agro and farming loans at 6 percent.

As of mid-April 2016, a total number of 2,342 farmers have obtained Rs 1.99 billion loan under the 6 percent interest subsidized  lending  scheme for  selected  agro-businesses.  Under the scheme, the government has provided Rs 41.9 million interest subsidy.

The government, through the budget speech for the Fiscal Year 2016/17, has lowered the rate of such subsidized lending to 5 percent.

Bankers say that they have been providing loans to borrowers if they see 'willingness and capacity' to repay loans. They say that the banks were not at fault for slow growth of agro loans. “While loan toward energy sector, particularly on hydropower sector, is increasing, we should find out reasons why loan flow to agriculture sector is not increasing,” Upendra Poudyal, president of Nepal Bankers Association, had said, while speaking at a program recently. "There has not been a viable practice of commercial agriculture in the lack of proper value chain system. Similarly, there are also limitations in the coverage of agro lending," Poudyal, who is also the CEO of NMB Bank, had said.

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