Loan Recovery Problems Higher in Rs 10-30 Million Credit Segment

Despite Nepal Rastra Bank’s mandatory push for increased lending to agriculture and micro, cottage, small and medium enterprises (MSMEs), loan recovery has proven more problematic in these sectors than elsewhere.

During a discussion with chief executive officers (CEOs) of banks and financial institutions on Wednesday, NRB itself presented data showing that loans ranging from Rs 10 million to Rs 30 million have the highest default rate. In the first quarter of the current fiscal year 2025/26, the average non-performing loan (NPL) ratio of commercial banks stood at 4.86 percent.

However, NPLs in the Rs 10–30 million loan bracket exceed 5 percent, NRB officials said during the meeting, according to Himalayan Bank CEO Ashoke Rana, who participated in the discussion.

“NRB itself has acknowledged that loans extended to small and medium enterprises face greater repayment problems,” Rana said. “This is largely because commercial banks lack sectoral expertise, particularly in agriculture and micro and small enterprises.”

NRB has mandated banks to ensure that by mid-July 2028, 15 percent of their total loan portfolio is extended to agriculture and 15 percent to micro, cottage and small enterprises, while 10 percent must be allocated to the energy sector. While banks have largely met the lending targets in the energy sector, they have struggled to meet the prescribed thresholds in agriculture and small enterprises, prompting NRB to repeatedly extend the deadline.

Nabil Bank CEO Manoj Ghimire also said repayment problems are particularly acute in loans extended to small and medium enterprises within the Rs 10–30 million range. He attributed this to limited repayment capacity among borrowers in this segment.

“Corporate borrowers typically operate five to seven businesses and can use income from other sectors to service their loans,” he said. “Very small borrowers also manage to repay loans through various means. The real problem lies with mid-sized borrowers who rely on a single business—if that business underperforms, loan repayment becomes difficult.”

During the discussion, participants suggested that regulatory provisions related to agricultural lending be made more flexible.

Agricultural Development Bank CEO Govinda Gurung said banks had urged NRB to ease some policy requirements specific to agricultural loans.

“NRB applies uniform rules across all types of lending,” Gurung said. “We have suggested providing some regulatory concessions for agricultural loans.”

Nepal Bankers’ Association President Santosh Koirala, meanwhile, urged authorities to support banks in loan recovery efforts. He also called for the removal of legal and procedural obstacles that hinder recovery and for measures to curb unruly activities that obstruct lawful recovery processes.

NRB officials also made presentations on the first-quarter review of the current monetary policy and directives issued earlier this week.

Introduce Loan Products Based on Customer Needs: Governor

Responding to suggestions from bank CEOs, NRB Governor Dr Bishwo Nath Paudel instructed banks to introduce loan products tailored to customer needs.

He expressed dissatisfaction over banks’ continued reliance on traditional lending approaches, stating that large segments of the population remain outside access to banking credit and that bank lending has not sufficiently supported real-sector economic growth.

Governor Paudel, who has prioritised district-level visits since assuming office, also criticised banks for failing to delegate adequate authority to branch offices and for not providing sufficient training to staff. He further warned that weaknesses have begun to emerge in banks’ institutional governance and urged CEOs to remain vigilant, according to participants at the meeting.