Banks’ Lending to Agricultural Sector Declines Despite Government Priority

Banks and financial institutions have reduced lending to the agricultural sector, even as the government continues to prioritise the commercialisation of agriculture.

Agricultural lending recorded negative growth after the government discontinued interest subsidies.

According to a regional study by Nepal Rastra Bank (NRB), lending to agriculture fell by 3.22 percent in Fiscal Year 2024/25. Banks had invested Rs 347.89 billion in agriculture in FY 2023/24, which dropped to Rs 336.70 billion in FY 2024/25.

In contrast, overall lending to the private sector from banks and financial institutions grew by 8.4 percent during the same period.

NRB data shows that Bagmati Province was the only province to record growth in agricultural lending, with a 1.30 percent increase. Agriculture lending fell by 15.28 percent in Gandaki Province, marking the steepest decline.

Devendra Raman Khanal, CEO of Rastriya Banijya Bank, said agricultural lending had surged when the government provided interest subsidies, but the trend reversed after subsidies were suspended. “The government’s subsidies had significantly boosted agricultural loans. Now that subsidies have been halted and earlier loans are being repaid, the overall lending volume has declined,” he said.

As of mid-October 2025, banks had invested Rs 51.66 billion in subsidised agricultural loans—down from Rs 80.11 billion in the same period a year ago.

Khanal said the agriculture sector has not become sufficiently commercial, and weak loan recovery has discouraged banks from expanding investments. “Interest subsidies pushed the sector further toward dependency rather than commercialisation,” he said. He added that subsidies should be based on production to ensure that genuine farmers receive support.

An NRB study conducted last year found that subsidised agricultural loans intended to boost production were often misused for purchasing land or for personal purposes. Based on these findings, the government amended its procedures in August, tightening lending provisions and reducing the interest subsidy.

NRB, which had mandated banks to allocate a certain percentage of their lending to agriculture, extended compliance deadlines after investment failed to grow as expected. In the latest directive issued in July, NRB moved the deadline for commercial banks to ensure at least 15 percent of their total lending goes to agriculture from mid-July 2027 to mid-July 2028. Earlier, the deadline had been extended from mid-July 2023 due to the Covid-19 pandemic.

In its monetary policy for the current fiscal year, NRB introduced a provision allowing banks to issue agricultural loans of up to Rs 1 million by valuing agricultural produce, cultivable land, or agricultural infrastructure as collateral. Likewise, banks may charge only a 1.5 percent premium above the base rate for loans under projects using improved seed varieties recommended by the Nepal Agricultural Research Council (NARC).