Economist and former executive director of Nepal Rashtra Bank Nar Bahadur Thapa claims that micro-monitoring has now become a means of hiding or manipulating bad loans and the Rashtra Bank is knowingly or unknowingly helping to hide bad loans. An edited excerpt from Yagya Vanjade's conversation with Thapa focusing on this poison:

There is a complaint that there is no proper distribution of loans in Nepal. At present, banks and financial institutions have provided loans of about 53 trillion 34 billion rupees. Where did this loan go?

About 30 percent of the total loans have flowed to agriculture, energy, small and medium businesses as directed by the National Bank. 40 percent of the total loan has to be disbursed in these areas until 084. Of the total loans, 64 percent has flowed to the corporate sector and 36 percent to households (individuals). In this way, 60 percent is used by corporate and 40 percent by individuals. Most of the loans taken by individuals are on household materials (consumable goods) and the loans used by the corporate sector seem to go to some fixed assets, capital formation and some working capital loans . Taking 64 percent as a base, it appears that about 30 percent of production, 20 percent of consumption and 19 percent of wholesale and retail credit have expanded. 

Looking at the data from the last five/six years, there has not been much change in the distribution and structure of loans. This has not changed the banking 'business model' in the case of loans. For eight/ten years, it seems that the bank's loans have been frozen in the same area in which they were investing, there has been no major transformation in it . Compared to the past, credit expansion in the hydropower sector has definitely increased. However, the expected investment in the hydropower and energy sector does not appear to be large. Even now it is only 8 percent of the total loan . Couldn't go beyond that . This is why we have to import electricity from India for eight months out of 12 months of the year. Looking at the loans under

title, it seems that 38 percent of the periodic loans are used in capital formation . The rest of the working capital seems to have gone to credit, consumption etc. . If at least 60 percent went to capital construction, it would have contributed to economic growth. Therefore, the future course of action should be to provide at least 60 percent credit for capital formation. 

It is claimed by the government side that they have made a policy to expand many loans in the micro, domestic and small enterprises/businesses, energy and tourism sectors. But why couldn't a lot of loans go to this area? 

Micro, household and small enterprises/businesses are important in terms of entrepreneurship and employment. Lately, the loans to this sector have decreased. It has not been improved. Only about 9 percent of the total loans seem to have gone to this sector. This confirms that financial access and financial inclusion have not increased in Nepal. Out of the total loan disbursement, only 9 percent are small and the remaining 91 percent are large borrowers.

It is said that loans could not go to agriculture, production and processing, construction, industry and other sectors except as directed by the regulatory body. It seems that 30 percent of the loans have gone to the

directed sector . It is very low . This shows that the national economy and the financial sector are not connected. The size of the financial sector has surpassed the size of the economy (GDP). However, this is the reason why only a small contribution to economic growth is seen. It can be questioned whether the National Bank intervenes in the portfolio of banks or not. However, more and more loans from the financial sector, which has expanded due to remittances, should have flowed into productive sectors including agriculture, energy, micro, domestic and small enterprises/businesses. 

What is the reason for not getting more loans in the mentioned area?

There was no government reform here. The private sector could not increase the demand for loans. It is not because the bank interest is expensive that the private sector has not taken loans. Because, now the interest rate has decreased . There is sufficient liquidity in the banking and financial sector. However, loan demand has not increased. There are many reasons other than the interest rate, which has discouraged the private sector from increasing its demand for loans. The investment climate in Nepal has not improved, there is a problem in investment, there is a deadlock . This indicates that structural reforms are now essential to improve the investment climate.  Looking at the

data, it seems that the proportion of total loans and the real estate sector is very low . However, many loans have gone to this sector and when there are problems in this sector, bad loans of banks have increased. What is reality ? 

It seems that the real estate loan is within the limit of 20-25 percent set by the National Bank. However, while disbursing loans, looking at the collateral taken by the bank, more than 78 percent is fixed assets . Out of that, only 66 percent is in house and land . However, very little credit has gone to project financing. It seems that even when giving loans for any purpose, banks are looking for fixed assets as collateral. 

If you don't have real estate, you can't get a loan from the bank, so citizens have to invest in immovable property in order to qualify for a loan. Due to this system, no matter what the purpose of the loan, some part of the loan has to be invested in real estate to increase the ability to take the loan. Due to our policy regime, borrowers have increased investment in real estate in a roundabout manner . Now we cannot link the banking sector to the real economy without major structural changes in our lending system. 

Various studies have shown that the expansion of loans from banks and financial institutions contributed little to the economic growth rate but to the increase in property prices, imports and inflation. Why did this happen? 

Out of the total loans, less than 40 percent went to capital construction and more than 60 percent of the loans are being used in areas other than capital construction . This increased asset prices and imports, increased inflation but did not contribute to economic growth . We have stopped the agricultural sector from opening up to foreign investment, the Power Purchase Agreement (PPA) is closed .

We have announced large industrial zones in seven provinces but the work has not progressed. Due to the fact that there is less credit in the real sector and more in other sectors, it has not contributed well to economic growth. This situation can be improved if about 60 percent of the loan is directed to capital construction. 

Even though the development and expansion of Nepal's banking sector is accelerating, project financing has not been able to accelerate . This means that those who do not have a mortgage cannot get a loan.

Banks have invested loans in project financing . Hydropower sector is a good example of this . However, there is very little credit expansion in the sector and project financing is very low . There were no institutional reforms in banking transactions, no Business Development Service (BDS). Project financing requires cash flow . Whereas, 48 ​​percent of establishments in Nepal do not keep transaction costs at all. Therefore many micro, small and medium entrepreneurs do not get project financing loans. 

Not only the banks but also the regulatory agency Rashtra Bank are to blame for not being able to create a situation where more loans go to the productive sector and less to the unproductive sector.

In 2031, Rastra Bank encouraged small borrowers to invest in protect financing by establishing the then 'Karja Surakshan Nigam'. Loans in this area were protected by the rules. Similarly, 'Krishi Seva Project Center' was established to expand credit in the agricultural sector. Currently this institution is closed. Therefore, it is not that there is no effort from the regulatory body. However, that is not enough. Policy arrangements have also been made for specialized investment funds to encourage project financing. Alternative funds have been established to raise capital for those who cannot raise capital by issuing shares. However, many policy and structural reforms are needed in this sector.

loan was not properly utilized . It is said that the tendency to use the machine by showing a purpose has increased . What is reality?

It's true . Something that shouldn't be happening here . The bank which gave the loan, could not do effective work for utilization . The concerned bank should see if the loan has been invested for the purpose as mentioned in the agreement made while taking the loan. If not, additional loan suspension, bad loan classification etc. should have been done . This work was not done by the bank, eyes closed . The National Bank also did not do on-site inspection and supervision. Without on-site supervision, the actual bad loans of the bank are not detected . The fact that bad loans are only 4 percent, which is much lower than expected, is due to the lack of on-site supervision of the National Bank. According to international best practices, there is no credit classification and loss system in Nepal. To put it simply, the current bad credit is artificial.