Kathmandu, August 29

The central bank has instructed the commercial banks or class ‘A’ financial institutions to ensure that the share of their direct lending to deprived sector stands at 1.25 per cent of their total loan portfolio by the end of first quarter of this fiscal.

Commercial banks would need to meet the criteria of direct lending to the deprived sector at two per cent (of the total loan portfolio) in this fiscal, as per the provision of the Monetary Policy 2016-17.

As per circular issued by Nepal Rastra Bank today, commercial banks would need to raise level of direct lending to deprived sector to 1.5 per cent in second quarter, 1.75 per cent in third quarter and two per cent by last quarter of the fiscal.

Commercial banks have to lend five per cent of their total loan portfolio to the deprived sector and the class ‘A’ financial institutions were extending these credits through micro finance institutions (class ‘D’) to meet the criteria set by the NRB in the past. However, from this fiscal, NRB introduced a mandatory provision of direct lending to the deprived sector.

Commercial banks have opposed the rule of the central bank citing they do not have the expertise on the deprived sector lending and have been working with the MFIs.

According to Nepal Bankers’ Association — the umbrella body of class ‘A’ financial institutions — the operating costs of commercial banks will go up significantly while extending small-scale loans to the rural areas. As per the provision of the central bank, 28 commercial banks have to mobilise around Rs 30 billion under direct lending provision in this fiscal.

The central regulatory and monetary authority, however, has allowed the commercial banks to count loan amount up to Rs one million provided to the commercial agriculture projects as deprived sector credit. Credit floated under the ‘Interest Subsidy for Commercial Agriculture Loans to the Youth’ scheme of the government can be categorised as deprived sector lending.

The central bank has defined marginalised community, women, physically challenged, small farmers, artisans, labourers and landless as deprived and eligible to obtain loans to run cottage and small industries and enterprises under the deprived sector category.

As per the rule of the central bank, five per cent of the total loan portfolio of commercial banks should go towards deprived sector. Similarly, such credit for development banks and finance companies has been set at 4.5 per cent and four per cent, respectively.

Today’s circular says banks and financial institutions (BFIs) can restore the branches that were closed or merged during the insurgency period without seeking permission from the central bank. However, BFIs have been asked to notify the NRB within a week of reestablishment of such branches. NRB can allow BFIs to open one branch in Capital against two branches restored in the rural areas and remote places that were closed down during Maoist insurgency.