Commercial banks extended Rs24 billion less in loans during the first half of the current fiscal year compared to the same period last fiscal year, as demand for loans from the private sector went down.

The total loans extended by commercial banks during the first half of this fiscal year was Rs205 billion against Rs229 billion during the same period last fiscal year, according to Nepal Bankers' Association, a grouping of the chief executive officers of commercial banks.

The decline has come at a time when the government’s policy has been to make more resources available to the private sector to achieve the targeted growth rate of 8.5 percent.

The monetary policy for the current fiscal year is also aimed at supporting the government's target of high growth, allowing commercial banks to borrow from foreign banks and financial institutions, mobilising foreign currency fixed deposits with at least 2-year maturity from institutional foreign depositors and Non-Resident Nepalis.

And with the demand for loans cooling, banks are in a comfortable position in terms of availability of loanable funds.

According to the central bank, credit to core capital and deposit ratio has been hovering around 78 percent currently against over 80 percent, the regulatory limit, at the same time last fiscal year.

“There is no strain in liquidity at the moment, an issue that had plagued banks for the past few years,” said Sunil Sharma, chief executive officer of NMB Bank.

He said that the demand for loans has decreased due to a decline in imports— particularly that of vehicles, iron and steel among others. During the first five months of the current fiscal, imports declined by 4.2 percent, according to the Trade and Export Promotion Centre.

However, the private sector said that the lack of business confidence also eroded the demand for loans.

Lately, the private sector has been complaining about the growing tendency of the government to control them. Several legislations have been brought which have sought to imprison businessmen for wrongdoings.

The new bill on revenue leakage control and consumer protection law have made the provision of imprisoning businessmen for a longer period.

The Office of the Company Registrar has also issued new directives on anti-money laundering with stringent provisions such as maintaining details about customers. This, according to the private sector is problematic as it adds more red-tape to doing business.

The government has also introduced a policy where enterprises are required to submit the same balance sheet to both tax authority and banks to get loans.

“I didn’t say these are bad reform measures. But, the laws and rules which are mostly control-oriented have been introduced at the same time, creating an environment of fear,” said Shekhar Golchha, senior vice-president of Federation of Nepalese Chambers of Commerce and Industry, the apex private sector body.

Satish Kumar More, president of Confederation of Nepalese Industries, a grouping of large and medium enterprises, said that businessmen were in wait and watch mode after the government introduced legislation that seeks to imprison people from the private sector. “The provision of fines would have been a better option instead,” he said.

As the private sector’s distrust of the government grows, central bank officials say the decline in the private sector’s borrowing should be considered as course corrections from previous years of aggressive borrowing.

‘This helps to stabilise the financial sector,” said Gunakar Bhatta, spokesperson at the Nepal Rastra Bank.

He said that Nepal’s average credit to Gross Domestic Product (GDP) ratio is relatively higher than many South Asian countries and should be controlled to achieve financial stability. As of mid-December, Nepal’s credit to GDP ratio stands at around 90 percent, according to the central bank.

However, the private sector said that the government’s reform measures have contributed to a slowdown in the market and many industries including the construction sector have witnessed sluggish growth.

“The automotive sector, in particular, has declined drastically since the central bank made a provision requiring customers to make a down payment of 50 percent to purchase a vehicle,” said Golchha.

The imports of vehicles, petroleum products, machineries among others have declined in the first five months of the current fiscal year, according to the Trade and Export Promotion Centre. A fall in imports along with a slowdown in the domestic market have affected revenue collection as well.

According to the Department of Customs and Inland Revenue Department, revenue collection in the first half of the current fiscal year fell short of the target by Rs90 billion.

The private sector has also been complaining about the high cost of electricity despite an increase in power generation. Earlier, industrialists had taken the Nepal Electricity Authority to court, claiming that the state utility had charged them wrongly for using electricity during load shedding.

The court ruled in favour of the Nepal Electricity Authority. Now, they are also complaining that the charges incurred from electricity served through the dedicated truck line much higher than what is delivered through the normal line. “It is 67 percent higher and this affects the competitiveness of Nepali industries. With electricity now being more accessible, the pricing should be revised,” said More.