Nepal Rastra Bank has approved refinance worth a whopping Rs64 billion for enterprises hit by Covid-19, indicating that the pandemic has taken a heavy toll on businesses.

The central bank said it was preparing to invite applications for additional refinancing facility as it has promised to provide more than Rs200 billion.

After the Monetary Policy 2020-21 announced refinance facility for enterprises affected by the coronavirus, a large number of businesses applied for it so that the interest payments they owed to banks would be lowered.

Under refinance facility, the central bank subsidises interest on loans by providing funds at 1 to 3 percent interest to commercial banks equivalent to the amount of credit they have issued to targeted borrowers.

The banks are allowed to charge these borrowers a maximum interest rate of 5 percent on their existing loans.

According to Nepal Rastra Bank, sectors that have been the hardest hit or faced middle-level impact are eligible to apply for the facility.

“We have approved refinance facility of around Rs64 billion for over 40,000 borrowers,” Dev Kumar Dhakal, executive director of the central bank, told the Post.

“Of the total value of refinance approved, Rs50 billion was allocated for applications submitted collectively by A, B, and C class banks and other financial institutions, and Rs14 billion was okayed on a case-by-case basis.”

Around 40,000 borrowers received refinance facility under the combined applications, according to the central bank. “The number of borrowers who benefited from refinance provided individually totalled 60,” said Dhakal.

The collective approach is used when a bunch of applications are reviewed together unlike under a case-by-case approach.

The central bank had started to provide refinance facility to enterprises applying to get refinance on a case-by-case basis since early October. Those who applied for the facility under the collective approach were given until mid-October to do so.

Under the collective refinancing approach, the central bank refinances up to Rs50 million per borrower. Under a case-by-case basis, it provides up to Rs200 million, according to the monetary policy.

Dhakal said that the large number of borrowers seeking refinance indicates that the pandemic has affected enterprises badly. “We sought to rescue them with the refinance facility,” he said.

The total outstanding amount of refinance provided by the central bank in the last fiscal year 2019-20 stood at Rs7.49 billion, according to the central bank.

In the past, refinance facility was made available mainly to exporters and productive industries sectors, and it was approved individually. But this year it is for pandemic-hit enterprises.

According to bankers, the collective refinance approach, as well as the flexibility adopted in the procedure targeted at benefiting Covid-19 affected sectors, played a key role in the massive rise in refinance approved this fiscal year. Until the last fiscal year, this facility was available only under a case-by-case basis.

Out of the over Rs200 billion available for refinancing in the current fiscal year, 70 percent will be provided in bulk by the central bank as per the requests for loans through commercial banks, 20 percent through a case-by-case basis and the remaining 10 percent of the bulk refinance will go to borrowers using microfinance institutions, according to the monetary policy.

According to the central bank, nearly half of the total refinance facility approved under the collective refinance mechanism has been approved for micro and small enterprises.

“As much as Rs23.5 billion has been approved for micro and small enterprises, and they have received up to Rs1.5 million each,” said Dhakal. The amount has already been released to banks and financial institutions, according to the central bank.

According to a central bank study released in August, micro and small enterprises were worse affected than larger industries during the nearly four-month-long lockdown which was lifted on July 21. Over 60 percent micro and small enterprises were fully closed enterprises while just over 40 percent medium and large industries were fully closed during the lockdown, according to a central bank study.

“The central bank has first released the amount meant for micro and small enterprises,” said Dhakal. “We are yet to release the fund for refinancing for bigger enterprises who need the provided facility between Rs1.5 million and Rs50 million.”

According to Dhakal, mostly hotels, schools and colleges, hospitals, pharmaceutical industries and other manufacturing industries are among the sectors that received refinance under the case-by-case basis.

According to bankers, they were inundated by requests for refinance facility after they called for applications. Rastriya Banijya Bank has got refinance approval for its 764 borrowers worth Rs1.87 billion.

“We got a large number of applications from small borrowers this time unlike in the past,” said Kiran Shrestha, chief executive officer of the government-owned bank. “It is probably due to the monetary policy’s focus on providing refinance to Covid-19 affected small and medium enterprises.”

Bhuvan Dahal, chief executive officer of Sanima Bank, said his bank also received many applications for refinance. “I have to see how many requests were received. But, it is massive,” Dahal, who is also the president of the Nepal Bankers’ Association, told the Post

He said that it was natural for enterprises to seek refinance as the pandemic hit the economy hard. “As this helps to lower their interest rate, it is natural to see a rise in requests,” he said.

Other bankers had also told the Post last month that they received a large number of refinance applications. According to them, many banks received requests beyond the threshold fixed by the central bank. As per the central bank directive, refinance can be extended to up to 25 percent of the core capital of a bank under the bulk refinance category.

The central bank began implementing the government’s Rs50 billion relief package last week. Under this scheme, enterprises can get loans at 5 percent interest for staff salaries and working capital to operate their industries.