In the first eight months of the current fiscal year (from Shrawan to Falgun), the loans disbursed by banks and financial institutions to the underprivileged class have decreased by about 20 billion rupees. As of last Falgun, the loans disbursed by banks and financial institutions to the underprivileged class are 276.46 billion rupees. Compared to last Ashar, the loans disbursed to the underprivileged class have decreased by 6.8 percent up to Falgun. In last Ashar, banks and financial institutions had disbursed loans of 296.62 billion rupees to the underprivileged class. 

However, compared to the same period of the previous fiscal year, the loans disbursed to the underprivileged class by banks and financial institutions were 287.76 billion rupees in Falgun of the previous fiscal year. 

Microfinance financial institutions have stated that the loans disbursed to the underprivileged class have decreased in recent months due to the impact on the flow of microfinance loans. Due to the fact that borrowers are not allowed to take loans from more than two institutions and the limit on interest rates, microfinance financial institutions have not been aggressively disbursing loans. They say that this has affected the poor class loans. There are both demand and supply-side reasons for the decline in loans. Under the demand side, there has been a decrease in demand from customers, while experts say that institutions have been aggressively lending under the supply side. 

The Rastra Bank has directed banks and financial institutions to provide a minimum of 5 percent of their total loans to the poor class. Of the aforementioned loans, about 25 percent are being provided by banks and financial institutions directly and the remaining 75 percent indirectly (through microfinance institutions and cooperatives). Since the overall loan demand is not increasing at present, this has also affected the poor class loans, said Santosh Koirala, President of the Nepal Bankers Association. 

‘Banks and financial institutions should provide a minimum of 5 percent of their total loan flow to the poor class. But that limit should be met every quarter,’ he said. ‘Currently, only the data of banks up to Falgun has been published, in which the minimum 5 percent may not have been reached for the poor class. But in the data of Chaitra, banks have reached that minimum limit. Banks that do not meet the specified limit even in Chaitra should face action. He admitted that the decline in loans to the poor class was mainly due to the low demand for loans from microfinance institutions due to the economy not being in a good shape. 

Nepal Rastra Bank spokesperson Guru Prasad Poudel said that the decline in loans to the poor class compared to last year may have been due to the recovery of old loans and the failure to increase new loan demand as expected. ‘According to the current system, banks must invest at least 5 percent of the total loan flow in the poor class. The Nepal Rastra Bank checks whether banks have provided at least 5 percent of loans to this sector every 6 months. Banks that do not meet the minimum standards are subject to action,’ he said. ‘That is why banks have provided at least 5 percent of loans.’ Spokesperson Poudel said that since the overall banking sector’s loan flow has not increased as per the target, its impact may have also been felt on loans to the poor class sector. 

Experts say that the overall loan has decreased due to the deteriorating investment environment and the fact that microfinance institutions have not expanded loans aggressively. “There is no environment to expand investment by taking risks for various reasons,” said a banker. “Since there is no demand from the rural level, microfinance financial institutions are not willing to expand loans aggressively with the amount borrowed from banks and financial institutions after paying interest.” 

As credit flow has not increased as expected while deposits are increasing, loanable amount (excess liquidity) has accumulated in banks and financial institutions. This is the reason why banks and financial institutions are reducing the interest rate on deposits every month. Since the base rate of banks and financial institutions decreases after the interest rate on deposits decreases, the interest rate on loans has also automatically decreased, according to banks.

The minimum interest rate on one-year personal deposits is lower than the maximum interest rate set by banks for ordinary deposits in Baisakh. Accordingly, the maximum interest rate that banks will provide on ordinary deposits in Baisakh is 3.181 percent. While the minimum interest rate on one-year personal term deposits is 2.869 percent. 

In the last eight months (from Shrawan to Falgun), banks and financial institutions have added an additional Rs 482.1 billion to their deposits. In the same period last year, deposits were added by Rs 277.23 billion. In the eight months of the current fiscal year (from Shrawan to Falgun), banks and financial institutions have extended additional loans of Rs 243.54 billion. This is an increase of 4.4 percent compared to last Ashar. With this, it has reached Rs 5741.24 billion.