Reduce productive sector lending requirement to 15%, bankers tell NRB

Kathmandu, July-6 Bankers have asked the Nepal Rastra Bank (NRB) to reduce minimum mandatory lending to productive sector by five percentage points.

Submitting a charter of suggestions to the central bank recently, Nepal Bankers Association (NBA) sought reduction in lending requirement for commercial banks to the productive sector to 15 percent from existing 20 percent.

Bankers have requested NRB to include its suggestions in the Unified Directives and Monetary Policy for Fiscal Year 2015/16.

NRB is preparing to formulate a new Monetary Policy under new Governor Chiranjibi Nepal.

Though bankers were opposing such mandatory requirement since the provision was introduced by the erstwhile Governor Yuba Raj Khatiwada, they have now formally urged the central bank to reduce percentage of such lending requirement.

At present, 'A' class licensed banks are required to extend at least 20 percent of their total lending to productive sector like agriculture, energy, tourism and small and medium enterprises. Of this mandatory requirement, commercial banks should make 12 percent lending to agriculture and energy sectors alone.

NBA, the umbrella organization of commercial banks, have cited 'current situation' of the country, which was not favorable for them to invest buoyantly in the agriculture, tourism and SMEs sectors, for the reduction of the mandatory lending requirement.

While the provision was brought with the main objective 'to encourage the BFIs to float loan s in productive sector and decrease their lending in unproductive sector, which also helps BFIs to minimize their credit risk', bankers, however, have conflicting claim. "The recent tragic disaster has reminded us that the over concentration of any bank's loan on a single areas could be risky. We have requested the central bank to reconsider the percentage of the directed lending so that banks can diversify their portfolios," Upendra Poudyal, president of NBA, told Republica.

NBA's suggestions read: "While adhering to the mandatory lending requirement, there is a situation of loans concentrating toward energy sector and over-centered risk toward energy sector."

In its suggestions, NBA has also claimed that there was not much demand for loan in the prescribed sector. NBA has also called for 'expansion' of definition of productive sector.

While the provision was brought with the main objective 'to encourage the BFIs to float loan s in productive sector and decrease their lending in unproductive sector, which also helps BFIs to minimize their credit risk', bankers, however, have conflicting claim. "The recent tragic disaster has reminded us that the over concentration of any bank's loan on a single areas could be risky. We have requested the central bank to reconsider the percentage of the directed lending so that banks can diversify their portfolios," Upendra Poudyal, president of NBA, told Republica.

NRB data shows that banks, in total, failed to meet 20 percent lending requirement in the productive sector in fiscal year 2013/14. According to the Financial Stability Report 2014 of NRB, banks have lent only 12.3 percent of their total lending to the productive sector. Banks have floated a total of Rs 891.63 billion loans, according to the report. This means that the commercial banks lent only Rs 109.67 billion to the productive sector.

"As at mid-July 2014, commercial banks extended only 12.3 percent of their total loans to productive sector which includes 8 percent of their total loans in agriculture and energy. Thus, as evident from figure, commercial banks are still below regulatory requirements of NRB on productive sector," the report added.

Source: Republica