KATHMANDU, July 18: Bankers have taken exception over a new measure in the monetary policy for Fiscal Year 2016/17 that requires them to directly lend 2 percent of their total loans in the deprived sector.

Speaking at a press meet organized in Kathmandu on Sunday, the umbrella organization of the commercial bankers said thatsuch lending was beyond their business expertise.

Earlier on Thursday, Nepal Rastra Bank (NRB) unveiled the new monetary policy that requires commercial banks, among others, to float 2 percent of their credits to the deprived sector themselves.

The central bank has also listed the sectors, people and types of loans which can be counted as deprived sector lending. Micro credit extended to women, Dalits, disabled, marginalized, small farmers and landless family, and aspiring migrant workers, can be counted as loans to deprived sector, according to NRB.

Earlier, banks were required to make 5 percent of their lending to the deprived sector. However, they were allowed to float such loans through microfinance institutions. The new provision requires them to make two percentage points of the five percent deprived sector lending themselves.
Such provision, according to bankers, will also undermine the roles of microfinance institutions who specialize in such lending.
"Commercial banks do not have the set up, infrastructure, branch network and expertise to make deprived sector lending. That is why microfinance institutions have been established for this type of business. These institutions specialize in micro credits," Sashin Joshi, advisor of NBA, said in the press meet.

Bankers have also warned that such requirement will become counterproductive for the banks.  

"To comply with this requirement, we have to build separate set up and spend two or three years to specialize ourselves on this type of lending which means we will have less focus on our core banking activities," said Poudyal.
While opposing such provision, the bankers, however, said that they will abide with the central bank's policy.

"We will have to implement the central bank policy. But we need time for the implementation as we should build necessary infrastructures first. Such policy can also be implemented in a phase-wise manner. Still, there will be question about the quality of such loans," he added.  

While the central bank has increased requirement of loans to agriculture and energy sectors to 15 percent from 12 percent as part of the existing 20 percent productive sector directed lending, bankers say that the scope and sectors should be broadened. "It is challenging to implement the increased requirement. While loan toward energy sector, particularly on hydropower sector, is increasing, we should find out reasons why loan flow to agriculture sector is not increasing,” Poudyal, who is also the CEO of NMB Bank, said. "There has not been viable practice of commercial agriculture in the lack of proper value chain system. Similarly, there are also limitations in the coverage of agro lending."

The central bank's decision to introduce interest rate corridor system, however, has elated bankers. Such system, they say, will help to reduce short-term interest rate volatility in the market.

 
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