Nepal Rastra Bank is set to revise the scope and limit of sectoral lending. Through the semi-annual review of monetary policy for the current fiscal year released on Tuesday, the bank announced that it will expand the scope of sectoral lending and also revise the existing rate related to the minimum lending ratio that banks and financial institutions must maintain in those sectors.

‘The scope of the sectoral credit limit implemented with the aim of encouraging credit expansion in agriculture, energy and micro, household and small enterprises/businesses will also include tourism, information technology and export-oriented industries based on domestic raw materials,’ the monetary policy review said. ‘The existing system requiring banks and financial institutions to maintain a minimum credit ratio in each of such sectors will be revised.’ 

Ram Sharan Kharel, Head of the Research Department of the National Bank, said that the review is aimed at facilitating credit flow and encouraging credit flow in the fields of information technology and AI. He claims that the overall economic activity is being increased by further encouraging banks in areas with investment potential, expanding investment in areas where production and employment are created, diversifying investment and facilitating the process of repaying loans to borrowers. 

Currently, there is a provision for banks and financial institutions to invest specified loans in agriculture, energy and micro, household and small enterprises. The National Bank has stated that tourism, information technology and export-oriented industries based on domestic raw materials will now also be included in those areas. According to the current arrangement, by Asad 2084, commercial banks must provide a minimum of 15 percent of loans to agriculture, 10 percent to energy, and a minimum of 15 percent to micro, household and small enterprises of less than 20 million rupees. Similarly, the National Bank has directed development banks and finance companies to provide loans in the aforementioned areas.

Now, arrangements are being made to comply with the instructions of the National Bank while providing loans in specific areas specified based on the interest, specialization, etc. of banks and financial institutions. "We are going to revise the arrangement related to the provision of loans in the specified areas, so that if a bank has good investment capacity in one area, it can make the specified investment in that area only," he said, "while if the capacity and efficiency of that bank to invest in all areas are low, why should it be said to invest in all areas? However, banks must invest in the minimum loan that must be provided in the specified area in any way." Through the

review, the guidelines on working capital loans have been revised so that banks and financial institutions can determine the fixed working capital period based on the analysis of the borrower's cash flow and financial statements. According to the new arrangement, the borrower will have to pay less than 30 percent of the outstanding working capital loan for at least 7 consecutive days of the year. Currently, the borrower has to pay less than 10 percent of the outstanding working capital loan for at least 7 consecutive days of the year. This is being increased to 30 percent. For example, if a borrower has taken a working capital loan of Rs 10 million, there was a provision that the borrower had to pay at least 90 million of the loan taken for 7 consecutive days of the year. After the new arrangement comes into effect, the borrower will have to pay at least 70 percent of the loan for 7 consecutive days. Similarly, the NRB is going to make arrangements to allow banks and financial institutions to recover a minimum of 10 percent interest on loans disbursed to enterprises/businesses displaced due to the expansion of the Mahendra Highway and Mid-Hill Highway and restructure/reschedule them by mid-Ashar 2083. The National Bank claims that this arrangement will provide relief to borrowers who have not been able to repay their loans due to road expansion.

Currently, banks and financial institutions are allowed to invest 30 percent of their primary capital in foreign currency as 'non-deliverable forwards'. Currently, this limit is 25 percent of primary capital. This means that banks and financial institutions can earn profit by investing up to 30 percent of their primary capital in various financial instruments outside the country. This arrangement will help increase the profitability of banks.

'Foreign investment in infrastructure construction including data centers, cloud computing, robotics labs/AI will be facilitated. In addition, co-financing loans from banks and financial institutions in such projects will be encouraged,' the review says. Through this arrangement, the National Bank seems to want to increase investment in infrastructure development in the information technology sector.

Similarly, the NRB has stated that it will effectively implement the existing system under which borrowers who are unable to repay their loans immediately due to circumstances will not be included in the blacklist and if the borrowers on the blacklist present a valid reason to repay the loan, banks and financial institutions will be allowed to remove the borrower from the blacklist for up to 6 months and recover the arrears. The NRB has committed to effectively implement the current system to address complaints of inability to repay loans as the collateral and all assets of a person are frozen once they are on the blacklist.