Kathmandu, July 26

Banks and financial institutions (BFIs) disbursed agricultural loans worth Rs 1.55 billion in fiscal 2015-16 as compared to around Rs 433 million of the previous fiscal under the government’s interest rate subsidy programme.

The total loan portfolio under this scheme has expanded to Rs 1.99 billion since the government had introduced interest rate subsidy for commercial agriculture loans programme from fiscal 2014-15.

Initially, only commercial banks — class ‘A’ financial institutions — were authorised to extend such loans. But the government later authorised class ‘B’ and class ‘C’ financial institutions to also sanction loans of up to Rs 10 million to a single borrower at an interest rate not exceeding six per cent.

According to Nepal Rastra Bank (NRB), altogether 27 financial institutions have issued such loans for 2,342 projects.

BFIs had obtained Rs 41.9 million from NRB as interest rate subsidy in the last fiscal. Altogether 19 commercial banks, seven development banks and one finance company have sanctioned loans under this scheme, according to the central bank.

Average size of loans sanctioned by the BFIs stands at Rs 849,701 per borrower, as the BFIs floated loans to 2,342 borrowers under this scheme.

The state-owned Rastriya Banijya Bank (RBB) was the best performer for sanctioning a total of Rs 620 million, followed by Agricultural Development Bank at Rs 470 million and Nepal Bank Ltd at Rs 270 million.

Similarly, Laxmi Bank topped the list among private sector banks under this scheme, with loans worth Rs 80 million sanctioned followed by Nabil Bank at Rs 70 million, and Nepal Investment Bank and Machhapuchchhre Bank at Rs 40 million each.

The central bank reimburses up to 400 basis points of the subsidised interest rate to the respective BFIs. This means 40 per cent of the interest rate charged by the BFIs is borne by NRB. Despite this facility, credit expansion in the agriculture sector has been slow.

While the ‘Interest Subsidy for Commercial Agriculture Loans to the Youth’ programme has also paved the way for banks to extend loans of over Rs 10 million under the interest subsidy scheme, BFIs first need to take permission from the central bank to extend such credit. However, loans of up to Rs 30 million are allowed for cold storage and do not need the central bank’s approval.

BFIs can maintain a loan portfolio of up to Rs one billion under this scheme and the risk weight on interest amount that banks have to collect from NRB will be nil under this scheme.

Under this scheme, BFIs have been extending loans in farming of vegetables, fruits, medicinal herbs, sugarcane, mushroom, black cardamom and ginger, wheat, buckwheat and perilla seeds. Loans have also been granted for bee-keeping as well as those involved in dairy, floriculture, livestock development and slaughterhouse operation at a commercial scale.

Likewise, high quality seeds production, processing and distribution of agricultural products at commercial scale are also eligible to borrow from BFIs under the subsidised interest rate programme.

BFIs will be able to get reimbursement of up to 500 basis point of the subsidised interest rate from the central bank from this fiscal, as the fiscal budget for 2016-17 has announced to extend interest rate subsidy of up to five percentage points from the existing four percentage points in agriculture loans extended under this scheme.

The fiscal budget of this year has also removed the ceiling of Rs 10 million under this scheme. However, this provision will come into effect only after NRB issues a circular to this effect to the BFIs.