Records at Nepal Rastra Bank (NRB) show only four banks -- NIC Bank, Prime Commercial Bank, Ace and Siddhartha Bank -- have made use of the facility. Together they have taken Rs 1.38 billion in refinancing over the first six months of this fiscal year, against the collateral of the good loans that they own.[break]
In the previous four months, 12 banks had made use of the facility and issued Rs 3.34 billion in loans to the productive sectors -- mainly exports, tourism, hydropower, agriculture, small and medium enterprises (SMEs) and manufacturing.
The central bank, in its mid-term evaluation of monetary policy for last fiscal year, introduced refinancing as a new tool for ´directed financing´ to promote productive sectors even amid the liquidity crunch.
Under the present high interest rate regime, the tool had ensured the productive sectors access to financing at a relatively lower rate. NRB has currently asked banks to lend the money they receive under the facility at a rate not exceeding 10 percent, or some 4 percent lower than the banks´ lending rate.
“But the demand for refinancing has turned out to be pretty low compared to what we anticipated,” admitted NRB Governor Dr Yuva Raj Khatiwada.
Bankers attributed the low use of the facility to the complex procedures involved. “The process is complex and banks have not been receiving financing to the extent they demanded. This has discouraged them,” said Ashok Rana, vice president of Nepal Bankers Association.
However, knowledgeable sources said that the low intake under the facility has to do largely with the present liquidity crunch and the problems banks are facing in maintaining the credit-deposit ratio.
Data shows that banks have failed to post meaningful growth in deposit mobilization over the past six months. But the central bank directive asks them to maintain their credit-deposit (CD) ratio at 80 percent.
“This has worked as a major constraint factor in making use of the facility,” said the source.
The situation, meanwhile, poses a serious challenge to the policy of the central bank, which directs banks to double their credit flow in the productive sector by 2012/2013, particularly where it will boost production, displace imports and also give a new impetus to export growth.
Bank credit flow in the productive sector presently stands at an average of 10 percent. In this connection, NRB has even asked commercial banks to submit their strategic plans to raise that to 20 percent of their total loan portfolio.
Although bankers in general said they welcome the central bank´s policy, they cautioned that they will not be able to adhere to it if low deposit growth and liquidity crunch continue to hobble the sector.
They asked the central bank to relax or revise its present policy of tight money supply.
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