Nepal | June 20, 2019

‘Incentivise BFIs for productive sector lending’

Himalayan News Service

Kathmandu, July 15

Nepal Rastra Bank (NRB) has been advised to incentivise banks and financial institutions (BFIs) to achieve the lending target to the productive sector.

The International Monetary Fund (IMF) has suggested the central bank to announce incentives on productive sector loans so that the BFIs are encouraged to float loans to the productive sector.

In the context of Monetary Policy 2017-18 having raised the target of productive sector lending, the IMF delegation has advised the central bank to introduce incentive packages for productive sector credit.

“Credit expansion of BFIs is one of the instruments that supports growth, especially the credit issued to the productive sector is a stimulus for growth,” said Gerard J Almekinders, deputy division chief of Asia and Pacific Department of the IMF and chief of the delegation.

The Monetary Policy 2017-18 has raised the lending rate to the productive sector for commercial banks from 20 per cent of the total loan portfolio to 25 per cent.

The central bank has defined hydropower, agriculture, tourism, export, small and medium industries, pharmaceuticals, cement and garments as productive sector.

Likewise, development banks and finance companies need to respectively float 15 per cent and 10 per cent of their total credit to the productive sector.

The central bank has said that it will penalise BFIs if they fail to meet the given requirement.

Andreas Bauer, IMF resident representative India and one of the members of the consultation, suggested that the central bank should make some considerations if the cost of fund goes up while floating loans to some areas directed by the monetary policy.

A version of this article appears in print on July 16, 2017 of The Himalayan Times.

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