Kathmandu. The slowdown in the economy in the last few years has overshadowed the agriculture sector, which is considered a priority sector. The size of loans issued by banks and financial institutions to the agriculture sector has been decreasing due to weak demand for loans from the private sector.
According to experts, the shrinking of investment in the productive sector is a more challenging sign for the economic recovery. According to the Nepal Rastra Bank (NRB), credit to the agriculture sector declined by 2.2 percent in the first five months of the current fiscal year. Although the Monetary Policy has set a target of expanding credit to the private sector by 12 percent, credit expansion has been limited to 1.9 percent till November. During the period, only Rs 102.24 billion was disbursed in new loans.
The total loan of the banking system has reached Rs 5.599 trillion as of mid-November. However, the share of the agricultural sector in this total loan has decreased compared to the previous year. The total credit had increased by 3.5 percent in mid-December of the last fiscal year, while credit to the agriculture sector had decreased by 0.7 percent.
Comparatively, the fiscal year 2081. As of December 1980, loans worth Rs 415.49 billion had been disbursed to the agriculture sector. In the same period of the current fiscal year, the amount has decreased to Rs 408.71 billion. The data for mid-July also seems to be repeating this trend. Agricultural loans were limited to Rs 417.88 billion till mid-July compared to Rs 418.59 billion in the corresponding period of the previous year.
There is also an imbalance in agricultural credit. According to the central bank, the loan to the tea sector has increased by 0.2 percent in the first six months of the current fiscal year. However, credit flow to farming, animal husbandry, fisheries and other agricultural businesses is declining.
The risk of agricultural loans in the banking system is also high. According to studies, the non-performing rate of agricultural credit is almost double the average of the entire banking system. As of mid-November, the average non-performing loan of banks and financial institutions has reached 5.26 percent.
According to bankers, new projects have stopped coming up in the agriculture sector. As a result, credit expansion has not been possible.
However, there have been attempts to encourage agricultural credit through monetary policy. The Monetary Policy led by Governor Bishwo Poudel has simplified the loan and mortgage valuation process for agriculture, micro, cottage, small and medium enterprises. Banks can provide loans up to Rs 10 lakh on the basis of self-assessment of agricultural crops, agricultural land and agricultural infrastructure. In addition, minimum loan loss has been arranged during the grace period.
However, even though the policy has been flexible, the demand for credit has not increased in practice. For this reason, the demand for providing loans at affordable interest rates in the agriculture sector and expanding the scope of interest subsidy has been intensifying in recent times. According to the stakeholders, if concessional agricultural loan is available, investment will increase and its positive impact can be seen on the overall economy.
