Nepal | January 30, 2020

NRB sets subsidised loan threshold

Sujan Dhungana
  • ‘Will address concerns that banking and financial institutions are reluctant to issue loans at low rates’
  • Bankers say central bank’s target can easily be met

Kathmandu, November 28

Following complaints that banks and financial institutions have not been prioritising disbursement of subsidised loans as per the ‘concessional loan scheme’ to targeted groups, Nepal Rastra Bank has made it mandatory for BFIs to float a certain number of such interest subsidy loans by the end of this fiscal.

Issuing a circular yesterday, the central bank directed commercial banks to float subsidised loan to at least 500 eligible beneficiaries by the end of fiscal 2019-20 across different sectors other than agriculture and livestock; development banks to 200 beneficiaries and finance companies to 100 beneficiaries.

However, NRB said BFIs could meet the set target counting the interest subsidy loans that they had disbursed since ‘concessional loan scheme’ was implemented in September last year.

Under this scheme, which aims to give access to cheaper credit to different groups, including educated self-employed you-ths, returnee migrant workers, Dalits, women entrepreneurs, earthquake survivors and youths, the government subsidises certain percentage of interest cost. The government bears five percentage points of the interest rate on loans floated by BFIs to these sectors, but for women entrepreneurs it subsidises six percentage points. Lately, the government announced it would make such concessional loans available to garment industries.

But BFIs were reluctant to give priority to disbursement of such loans, prompting the central bank to set minimum threshold on number of such loans for BFIs, Govinda Nagila, deputy spokesperson for NRB, told THT. As per statistics maintained by NRB, BFIs had extended Rs 37.83 billion under several concessional loan schemes to 18,295 beneficiaries till mid-July this year.

The low margin on interest rate has been the discouraging factor for BFIs in issuing subsidised loans, as NRB does not allow them to charge over two percentage point premium on the base rate for interest on such concessional loans.

However, Bhuvan Dahal, chief executive officer of Sanima Bank, claimed that banks had been ‘promoting disbursement of such loans in recent times’ despite the low margin.

Former NRB governor Dipendra Bahadur Chhetri said fixing minimum number of such loans that BFIs should float under the concessional loan scheme of the government ensured that at least a certain number of people would benefit. “BFIs had been issuing such loans voluntarily. With the minimum target in place, it will not only benefit a certain number of people but also help set up new businesses, which is a must to substitute imports,” he said.

Ashok Sherchan, chief executive officer of Prabhu Bank, said banks could easily meet the target set by NRB for concessional loan disbursement as banks had hundreds of branches scattered across the country. “Prabhu Bank has more than 200 branches and we’ll easily meet the target even if each of our branch disburses just three concessional loans,” he said.

A version of this article appears in print on November 29, 2019 of The Himalayan Times.

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