As many as 10 commercial banks out of the total 27 had failed to meet the minimum threshold of credit to be extended to the agriculture sector by mid-January this year, according to Nepal Rastra Bank. The banks were in fact required to meet the threshold by mid-July last year, as per the directive of the central bank.

The banks were supposed to extend at least 11 percent of their total loans to the agricultural sector by the end of the last fiscal year that ended in mid-July, 2021 but failed to do so even six months past the deadline.

Likewise, the number of banks failing to meet the credit threshold in the energy sector is even higher. As many as 14 banks have failed to meet the threshold set for the sector by mid-January this year, according to the central bank. Banks were supposed to extend at least six percent of their total loans to the energy sector by mid-July 2021.

Similar is the situation of lending to small and medium enterprises. As many as 17 commercial banks had failed to meet the threshold in the SMEs sector lending by mid-January this year.

As per the central bank’s instructions, commercial banks were supposed to provide at least 11 percent of their total lending to the SMEs by the end of the last fiscal year. But the lending situation has not improved even six months after the expiry of the deadline.

“One of the reasons for the banks’ failure to meet the lending thresholds is the Covid-19 pandemic that has badly hit businesses for the last two and a half years,” said Ashoke Rana, chief executive officer of the Himalayan Bank. “Even though lending increased substantially in the first half of the current fiscal year, most of the loans were extended to finance imports instead of the priority sectors.”

The Himalayan Bank, which did exceptionally well in lending to the agricultural sector, failed miserably in increasing lending to the hydropower and the small and medium enterprises sectors, according to the central bank.

The bank’s lending to the agricultural sector, which was 23.62 percent of its total credit, as of mid-January is the second largest portion and only second to the Agricultural Development Bank, whose lending to the sector was 38.28 percent of its total loans, according to the central bank statistics.

The Himalayan Bank’s lendings to the hydropower sector and SMEs stand at 2.03 percent and 1.79 percent, respectively, of the total lending as of mid-January.

“We were selective while lending to the hydropower sector,” said Rana. “When it comes to SMEs, we have extended fewer loans under the Rs10 million category. But we provide up to Rs60 million as SME lending. So our lending to the SMEs appears to be low as per the definition of the central bank, which counts only the loans under Rs10 million as SME sector loan.”

Banks failing to meet the threshold are subjected to fines by the central bank. But the Nepal Rastra Bank on Wednesday provided a leeway telling the banks they can extend 32 percent of their total lending to the priority sectors if they are unable to meet the individual credit thresholds for agriculture (11 percent), energy (10 percent), and SMEs (11 percent) sectors.

The Agricultural Development Bank, which has invested the highest amounts of loans to the agricultural sector among the commercial banks as of mid-January, however, was able to invest just 4.75 percent of its total loans to the energy sector as of mid-January, according to the central bank.

Anil Upadhyay, chief executive officer of the bank, said his bank has purchased the power bonds issued by the NMB Bank to increase lending to the hydropower sector.

The central bank has allowed banks and financial institutions to meet their priority sector lendings by purchasing relevant bonds issued by other banks and financial institutions. The Agricultural Development Bank’s 20.61 percent of the total credit has gone towards the SMEs, according to the central bank.

However, most other banks failed to meet the threshold in the energy sector. Upadhyay said one of the reasons for the banks’ failure to meet the thresholds is the lack of loanable funds in the last few months. “Even if they want to increase lending to meet the thresholds, they cannot do so for lack of liquidity,” said Upadhyay, who is also the president of Nepal Bankers’ Association.

Meanwhile, the central bank has extended the deadline for the commercial banks to meet the thresholds for lending to the priority sector.

As per the new directives issued on Wednesday, banks and financial institutions can now increase their lending to the agriculture sector to 15 percent by mid-July 2025 from the previous deadline of mid-July 2023.

Likewise, they can increase their credit to the hydropower sector to 10 percent by mid-July 2025 from the earlier deadline of 2024 and they can increase SMEs sector lending to 15 percent by mid-July 2025 from the earlier deadline of mid-July 2024.

“Considering the impact of the Covid-19 pandemic in businesses, we relaxed the provision regarding the priority sectors lending to give breathing space to the banks and financial institutions,” said Gunakar Bhatta, spokesperson for the central bank.