Banks and financial institutions expanded credit by 7.9 percent in the first eight months of the current fiscal year despite facing shortage of funds that could be disbursed as loans.

Banks and financial institutions disbursed Rs275.1 billion in fresh loans in the eight-month period between mid-July and mid-March of this fiscal year, shows the latest data of the Nepal Rastra Bank (NRB), the central bank.

Banks and financial institutions had disbursed Rs254.9 billion in fresh credit in the same period a year ago.

Bankers said the credit expansion rate of the eight-month period was one of the slowest in years as they have not been able to meet the credit demand due to sluggish deposit growth following deceleration in remittance inflow and slow public spending. Lower supply of deposit has pushed up credit rates, keeping borrowers at bay.

Some of the sectors that saw higher credit demand in the first eight months of the current fiscal year are wholesale and retail, services and agriculture.

Agriculture sector absorbed Rs38.3 billion in loans in the eight-month period, up 474.7 percent than in the same period a year ago, NRB report shows. Credit uptake in the wholesale and retail sector was also healthy, with loan consumption standing at Rs61.4 billion in the first eight months of the current fiscal year.

This marked a year-on-year growth of 26.1 percent. Services sector also saw 17.3 percent jump in credit expansion to Rs21.8 billion in the first eight months of the current fiscal year.

Agriculture, wholesale and retail, and services sectors accounted for 13.9 percent, 22.3 percent and 7.9 percent of credit disbursement, respectively, in the first eight months of the current fiscal year.

However, credit uptake in some of the crucial sectors such as production and construction that create large number of jobs remained dismal, NRB report shows.

Credit disbursement in the production sector fell 14.8 percent in the first eight months of the current fiscal year. The sector absorbed Rs30.3 billion in credit in the eight-month period, as against Rs35.6 billion in the same period a year ago.

Construction sector, on the other hand, saw 26.6 percent fall in disbursement of fresh credit. The sector consumed Rs24.1 billion in loans in the eight-month period, as against Rs32.8 billion in the same period a year ago. Despite this, credit disbursement in the non-residential construction sector soared 114.5 percent to Rs2 billion in the eight-month period, shows the NRB report.

Of the total outstanding loans of banks and financial institutions till date, 61.4 percent are against the collateral of land and building, and 14.7 percent are against the collateral of current assets. Such ratios stood at 60.2 percent and 14.5 percent, respectively, in the same period a year ago.

Banks and financial institutions have so far disbursed Rs2,261.3 billion in credit.