August 19: Commercial banks failed to meet the lending requirement to small and medium enterprises in the last fiscal year.  According to a recent report of Nepal Rastra Bank, banks have provided such loans at a ratio of 10.1 percent instead of the required 11 percent. 

Banks were instructed to provide lending facility at a ratio of 11 percent until the end of the last fiscal year. The lending to SMEs is less by 0.9 percentage points. SMEs received loans of Rs 327 billion in the last fiscal year. 

Through the monetary policy introduced last year, Nepal Rastra Bank (NRB) had directed the commercial banks to provide 11 percent loan to SMEs until the end of last fiscal year (FY 2020/21), 12 percent until the end of FY 2021/22, 14 percent and 15 percent until the end of the next two fiscal years, at a rate of  Rs 10 million per enterprise. This provision has been continued in the monetary policy of the current fiscal year as well. However, the credit flow did not meet the target in the first year of implementation.

NRB has said that no action will be taken against the banks in this regard.  Dev Kumar Dhakal, spokesperson of the central bank, said that the banks have been given exemption for this time. He said that the loan should be disbursed adhering to the mentioned provision by the end of the current fiscal year.

By the end of the current fiscal year, commercial banks are required to disburse loans at the ratio of 12 percent.

“COVID-19 pandemic affected the credit flow in such areas in the last year so the banks will not be penalized for their inability," Dhakal said, adding, “They are required to provide the lending facility as per the provision in the current fiscal year,".

On the other hand, banks argue that the credit flow at the ratio of ten percent to the SMEs is as an achievement. Bhuwan Dahal, chairman of the Nepal Bankers Association, said, “It is a significant achievement that SMEs have received loans at a ratio of 10 percent. The target set by the central bank was high so it was impossible to meet it.  We hadn't expected the lending would be this good enough."

According to Dahal, loans being extended to the SMEs should be increased at one percent annually. Setting high targets created challenges in the last year, said Dahal.