Central bank provides zero interest loans

KATHMANDU, DEC 7, 2011

The central bank has decided to extend interest free loans to commercial and development banks to venture into remote areas this year also to increase financial accessibility.

The commercial banks and development banks are entitled to interest free loans up to Rs 5 million to open branches in the 30 designated districts, the central bank said, "If they opt to open branches outside the district headquarters, they are entitled for the loans up to Rs 10 million."

The provision that was introduced last December had been well received by the financial institutions. "About 12 banks and financial institutions obtained interest free loans from central bank to open branches in remote areas," spokesperson for Nepal Rastra Bank (NRB) Bhaskar Mani Gyanwali, said, adding that most of the loans were meant for branches outside district headquarters.

However, this time, NRB has issued circular stating that the facility will not be extended to the branches being opened near the major highways and the areas surrounding municipalities or VDCs and the district headquarters.

In the last fiscal year, the interest free loans worth Rs 115 million have been provided to banks to open branches in designated remote districts.

Along with the interest free loans, NRB has also enforced the earlier decree of allowing banks and financial institutions to open branch in Kathmandu valley only after opening two branches outside the valley. The banks and financial institutions need to mandatorily open one branch in the designated remote districts before opting for branch in the valley. Though the finance companies are not entitled for the interest free loans to open branches, they do not need to manage additional paid up capital to open branch in one of the 30 remote districts or in municipalities or VDCs that have less than two branches of any financial institutions.

According to the existing regulations, the finance companies need addition of Rs 5 million on its paid up capital to open branch outside Kathmandu Valley and to open a branch within the valley they need to add Rs 20 million on the paid up capital.

Despite the growing number of financial institutions, banking access has not drastically improved in the recent years. NRB governor Dr Yubaraj Khatiwada has also admitted that lack of banking accessibility is one of the major challenges for the central bank.

According to NLSS-III, some 39.9 per cent households have access to commercial banks' branch within 30 minutes walk radius at present from fifteen years ago’s 20.7 per cent households.

Refinancing for hydel projects

Nepal Rastra Bank (NRB) is going to provide refinancing facilities for hydropower loans at 6.5 per cent interest. According to the central bank, the banks and financial institutions that will obtain the refinance facility to finance the hydro projects can not charge the projects more than 10 per cent interest. NRB will provide refinance facility up to 80 per cent of project provided it is considered to be good loan or up to 60 per cent of the financial institutions' core capital.

Source: THT