Banks have said that it is ‘almost impossible’ to give 2 percent of their total credit issue directly to consumers in the deprived sector as instructed by the monetary policy for fiscal 2016-17 as they don’t have experience and expertise in the area.

According to the monetary policy, commercial banks have to give 5 percent of their total loan issue to the deprived sector while 2 percent of the loans should go directly to consumers. Bankers described the provision in the new monetary policy as their biggest challenge. Currently, banks provide wholesale loans to microfinance institutions (MFIs) and they in turn provide retail loans to the actual consumer.

“Micro lending is not a sector in which commercial banks have expertise,” said Upendra Poudel, president of the Nepal Bankers’ Association (NBA), during an interaction on Sunday. “Administering small-sized loans to the deprived sector needs a separate specialised institution.” Poudel urged the central bank to rethink its decision.

Bankers are also disappointed the central bank ‘didn’t consult’ with them before taking such a measure. “We have absolutely no clue why Nepal Rastra Bank made such decision. As of now, commercial banks don’t have institutional capacity or expertise to carry out such lending,” said Sashin Joshi, former president of the NBA.  “With this decision, commercial banks have been forced to step into the area of operations of microfinance institutions. If banks start extending micro credit directly, what will MFIs do?” asked Joshi. 

Currently, the total lending of commercial banks amounts to around Rs13.66 trillion, according to the NBA. With the provision coming into effect, they will have to pull around Rs27 billion from microfinance institutions and lend the funds directly to small borrowers.

According to Nepal Rastra Bank (NRB), the provision was inserted in the monetary policy to bring down the high interest rates charged by MFIs. “Microfinance institutions are charging extremely high interest rates,” said Shiba Raj Shrestha, deputy governor of NRB. “Once commercial banks start lending directly to consumers, interest rates will come down because of competition.” Microfinance institutions have also been told to maintain the spread rate at 7 percent.

The NBA also criticized the provision of increasing the mandatory lending to agriculture and energy to 15 percent from 12 percent. “When we look at the statistics, we can see some commercial banks struggling to meet the target of 12 percent,” said Poudel.

“It would be very difficult to meet the new target. Instead, we urge the central bank to add a few more industries like tourism and others in the productive sector.” The monetary policy has stated that banks will be punished if they do not fulfill the 15 percent requirement.

Meanwhile, bankers praised the policy for being more strict on margin lending and real estate lending by banks and financial institutions (BFIs). According to the policy, BFIs can extend credit amounting to only 50 percent of the value of their stock. Earlier, they could lend up to 60 percent of the value of their stock.

As per the new policy, BFIs can lend only up to 50 percent of the total value in case of commercial real estate and up to 60 percent in case of private housing.

CNI welcomes monetary policy

KATHMANDU: Confedera-tion of Nepalese Industries (CNI) has welcomed the monetary policy, stating it has addressed a majority of the demands of the private sector. In a statement, the CNI said provisions of increasing the upper limit of lending for consortium financing to Rs1 billion, increasing the mandatory credit exposure to productive sectors like agriculture and energy and implementing the Basel-III accord in the banking industry are welcome moves. “CNI also welcomes hike in the limit of draft and TT to $50,000 from $40,000 while importing goods from third countries.”