March 7: Commercial banks are facing difficulty to provide loans to priority sector as specified by Nepal Rastra Bank (NRB). The priority sector lending includes agriculture, hydroelectricity and micro, domestic, small and medium enterprises. Although NRB instructed the commercial banks to invest 40 percent of the total loans in the specified areas by June 2026, the banks’ investment in these sectors have reached just 28.88 percent as of mid-January of the current fiscal year.

NRB instructed the commercial banks to invest 15 percent each in agriculture as well as domestic, small and medium enterprises and 10 percent in hydropower by June 2026. According to the instructions, banks should invest 11 percent in agriculture and domestic, small and medium enterprises by the end of June 2023, 13 percent by June 2024, 14 percent by June 2025 and 15 percent by June 2026. In the case of hydropower, 6 percent must be invested by June 2023, 7 percent by June 2024, 8 percent by June 2025 and 10 percent by June 2026.

Among the priority sectors, the investment of banks in agriculture is more than specified, but the condition of investment in domestic, small and medium enterprises is rather weak. According to NRB, commercial banks have invested 13.09 percent of the total loans in agriculture by mid-January 2023. Agriculture Development Bank has invested 28.35 percent in the agriculture sector. Other banks have invested 11 to 19.95 percent of the total loans in this sector.

Banks have invested 6.29 percent in the hydropower sector till mid-January 2023. In hydropower, Sanima Bank has the highest investment of 9.96 percent and NIC Asia has the lowest investment of only 1.47 percent.

The weakest investment of banks is in micro, domestic, small and medium enterprises. Commercial banks should invest 11 percent in this sector by next June, but they have invested only 9.51 percent as of mid-January 2023.

Former President of Nepal Bankers Association, Bhuvan Kumar Dahal says that even if banks invest in agriculture and hydropower as directed by NRB, it will be difficult for them to invest in small and medium enterprises. He suggested that instead of forcing big banks to invest in micro, domestic, small and medium enterprises, it would be appropriate to make them do it through microfinance, development banks and finance companies.

As the banks were unable to invest as specified, NRB pushed the deadline by 1 year last year. NRB revised the integrated directive last winter and moved the deadline for investment in priority areas from the end of June 2025 to the end of June 2026.

NRB spokesperson Dr. Gunakar Bhatta says that due to the Covid-19 pandemic and lack of liquidity, banks could not expand their credit, so the deadline for credit investment in priority areas has been postponed by one year. According to him, the banks that do not invest within the specified time will have to pay fines according to the rules.

According to Section 81 of Nepal Rastra Bank Act, 2058, if the loan is not disbursed within the specified period or if the disbursement is less than the minimum amount, there is a provision to penalize the banks.