Bank lending to Agriculture rises in Nepal

Commercial banks’ lending to the agriculture sector has surged, but that to hydro power sector is still on the lower side.

As of the 11th month of the last fiscal year, banks’ lending to agriculture sector reached 6.16 percent of their total credit portfolio, while the credit to the hydro power sector stood at just 2.13 percent, according to the Nepal Rastra Bank (NRB).

The central bank has told commercial banks to increase their lending to these two sectors to at least 12 percent of their total credit disbursement by the end of the current fiscal year 2014-15. The central bank, however, has not set the exact ratio between the lending to these sectors.

The banks have also been directed to boost lending to the productive sector to 20 percent by the year-end.

Banks’ lending to the agriculture sector, as of the 11th month of the last fiscal year, reached Rs 49.47 billion — up 24.4 percent year-on-year. The central bank, however, did not reveal the size of the loans going to the hydropower sector.

Bankers said increased investment in agriculture compared to hydropower was “natural” given expanded scope in the farm sector.

Sanima Bank CEO Bhuvan Kumar Dahal said the credit demand from the hydropower is still low, while there are many borrowers in the agriculture sector. “As the country generates less than 1,000MW hydropower and big projects have not come, chances for the sector getting more loans than agriculture are slim,” he said.

The country’s installed hydropower capacity currently stands at just 767MW, and the government aims at increasing the capacity by just 28MW this year.

And, commercial banks have not financed big projects like the 456MW Upper Tamakoshi, but institutions like Employees Provident Fund and Citizen Investment Trust. “Even smaller projects, to which banks have issued loans, are facing problems related to transmission lines and land acquisition,” said Dahal.

Until a few years ago, before the central bank’s compulsory provision, the banks were reluctant to invest in agriculture.