The highest amount of farm loans went to the agro processing and services sector in the last fiscal year as it was the most lucrative investment opportunity for banks and financial institutions (BFIs), said Nepal Rastra Bank (NRB).
Of the total agricultural credit of Rs 47 billion, this sector received Rs 15.5 billion, according to Annual Economic Activities Study Report 2013-14 released by the central bank.
The central bank’s survey covered eight major city areas—Kathmandu, Biratnagar, Janakpur, Birgunj, Pokhara, Bhairahawa, Nepalgunj and Dhangadhi—spread over 47 districts.
One reason agricultural loans have swelled is that the credit issued to agriculture processing has also been included in this category.
Min Bahadur Shrestha, chief of the research department at the central bank, said that agriculture processing had been classified as an agricultural activity and that loans provided to this sector were considered to be agricultural lending.
The livestock and slaughterhouse sector received the second highest amount of credit from BFIs followed by poultry and ostrich farming. Lending to commercial vegetable farming came third in terms of the amount of loans.
According to the report, the livestock and slaughterhouse sector received loans amounting to Rs 9.66 billion while bird rearing received Rs 8 billion. Commercial vegetable farming received credit worth Rs 3.22 billion.
“These are the areas where commercialization has happened, and so BFIs have also invested in them,” said Shrestha.
In contrast, the irrigation sector was the least preferred sector for lending for BFIs which, according to NRB, is due to the fact that the government itself invests huge sums in it. The irrigation sector received Rs 37.5 million preceded by bee keeping with Rs 53 million and tobacco farming with Rs 317.5 million at the bottom of the list.
Although tobacco farming was among the smallest borrowers in the last fiscal year, it posted the highest growth rate this year with loans shooting up 865.5 percent. The fertilizer and pesticide sector came second with a growth rate of 117 percent. Livestock and slaughterhouse, vegetable farming and bird rearing are the other sectors recording the highest rise in borrowing.
Overall lending to the farm sector has been rising in recent years after the central bank made it mandatory for commercial banks to direct a certain percentage of their total loans to agriculture and hydropower.
Banks are required to raise the portion of their lending to these two sectors to 12 percent by this fiscal year. According to the report, credit growth in the agriculture sector was 28 percent in the last fiscal year compared to 42 percent in the previous fiscal year. “There are yet to raise the level of their lending to the agriculture sector to 6 percent,” said Shrestha.
The government’s policy of providing farm loans at 6 percent interest is also expected to help raise the total amount this fiscal year.
NRB has introduced a working procedure regarding provision instructing commercial banks that they can lend to 12 different areas including vegetable farming, agro processing and youths.
As per the scheme, banks charge 10 percent interest on farm loans. The government pays 4 percent while the beneficiary youth farmers pay 6 percent.
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