Concessional Loans of Banks Declining as Government Fails to Disburse Interest Subsidies

YADAV HUMAGAIN

The subsidised loan program of banks and financial institutions (BFIs) has been affected as the BFIs have not received interest subsidies from the government.

Along with the number of debtors, the amount of credit investment has gone down since banks stopped providing new concessional loans a year ago.

 Around 145,000 individuals had taken concessional loans totaling Rs 197 billion from the banks as of mid-July last year, according to Nepal Rastra Bank (NRB). In a year, the number of debtors and loan investment have declined by around 25,500 and more than Rs 70 billion, respectively.

Gobinda Gurung, Chief Executive Officer at Agricultural Development Bank, said that banks have not approved new concessional loans for a year due to an increase in the arrears of the amount owed by the government to banks for interest subsidies.

“The government owes banks over Rs 16 billion in arrears for interest subsidies,” said Gurung. “Agricultural Development Bank alone is yet to receive Rs 1.16 billion.”

The amount allocated by the government for subsidising the interest of concessional loans for the current fiscal year is less than the arrears owed to the banks. While the government had allocated Rs 11.59 billion in the last fiscal year, Rs 11 billion has been set aside for interest subsidy for the current fiscal year.

It was announced in the previous year's budget that the interest subsidy program for concessional loans would be restructured based on a study of effectiveness of loan.

The budget for the current fiscal year says that the procedure for subsidising the interest on concessional loans would be reviewed.

Despite an increase in the amount of concessional loans, the program has been criticised for being ineffective and accused of being misused by those who have an easy access to it. 

Although NRB conducted a study on the effectiveness of concessional loans last year, the report is yet to be published.

According to the procedures related to interest subsidies for concessional loans, banks provide loans in 10 areas including commercial agriculture and animal husbandry, youth education and self-employment, returnee migrant workers, women's enterprises, and textile industry among others.

Banks can set the interest rate by adding a maximum premium of 2 percentage points to their base rate for such loans.

The government provides a 6% subsidy on loans for women entrepreneurship and 5% on loans for other sectors.

However, there is a provision to give only a 2% interest subsidy on commercial agriculture and livestock loans exceeding Rs 50 million.