Nepal Rastra Bank has capped the interest on agriculture and business loans of up to Rs1.5 million in a bid to stimulate the agriculture sector.

By amending the Unified Directive 2018 on Monday, the central bank has allowed banks to charge a premium of only up to two percent on top of the base rate while fixing the interest rate on such loans. In addition, banks have also been asked to approve agriculture loan within a week of the application date. “If the banks are unable to issue the loan, they must give a written notification to the applicant,” reads the Nepal Rastra Bank directive.

In the new rule, banks have been asked to accept arable land without a motorable road as collateral. The banks have been barred from charging any surcharges in the form of service fee while issuing an agriculture loan.

And when the bank provides a farm loan, it needs to notify Nepal Rastra Bank within 15 days. The provisions in the amended unified directed are in line with the newly enforced monetary policy.

The government has allocated Rs34.80 billion for the overall development of agriculture and related sectors which includes irrigation, rural roads, rural electrification, market and storage. Laxmi Prapanna Niroula, spokesperson of Nepal Rastra Bank, said the central bank has come up with the provisions to prioritise development of the agriculture sector.

The central bank has also asked microfinance institutions to provide at least one-third of their total loan portfolio to agriculture. “If the institution fails to abide by the new rule, the central bank will slap a cash penalty equivalent to the highest amount of the interest that the microfinance could generate over the specified period,” said the directive.

Nepal Rastra Bank has also set an age limit for chief executive officers and board directors at banks and financial institutions. The new rule has set the age limit of 65 years for the chief executive officer position. Any individual will not be allowed to work in banks and financial institutions after crossing the age of 69.

Similarly, the age limit for a board director has been set at 70 years. The board member will not be allowed to continue in the same capacity after crossing the age of 75.

The circular has also lowered the threshold on deposits collected by a bank from a single institutional investor. The ceiling has been fixed at 10 percent, down from 15 percent earlier.

To ease the banks’ chronic crunch of loanable funds, the central bank has allowed banks to issue the amount raised from debentures as credit. However, the condition is only applicable for funds generated from debentures that have a maturity period of five years or more.

The new provision announced in the monetary policy requires commercial banks to float debentures equivalent to at least 25 percent of their paid-up capital by mid-July 2020.

Under the new arrangement, the central bank will provide refinance facility for loans up to Rs 1 million to banks and financial institutions at 3 percent per annum. Banks are not allowed to charge more than 7 percent interest rates for loans floated under refinance facility.

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