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Nepal : AGRICULTURE lending surges while hydropower lending is still in NEPAL

July 22, 2014

Commercial banks lending to the agriculture sector surged, but the hydropower sector is still on the lower side.

Banks lending to agriculture sector reached 6.16% of their total credit portfolio, while the credit to the hydropower sector stood at just 2.13%.

The central bank told commercial banks to increase their lending to these 2 sectors to at least 12% of their total credit disbursement for the fiscal year 2014-15. However, the central bank has not set the exact ratio between the lending to these sectors.

The banks have been directed to boost lending to the productive sector to 20%by the year-end.

Banks lending to the agriculture sector reached Rs 49.47 billion, up 24.4% year-on-year. The central bank did not reveal the size of the loans going to the hydropower sector.

Bankers increased investment in agriculture compared to hydropower was natural given expanded scope in the farm sector.

The credit demand for hydropower is low, while there are many borrowers in the agriculture sector. The country generates less than 1,000 MW hydropower and big projects have not come, chances for the sector getting more loans than agriculture are slim.

The country s installed hydropower capacity stands at 767 MW, and the government aims to increase the capacity by 28 MW.

Commercial banks have not financed big projects like the 456 MW Upper Tamakoshi, but institutions like Employees Provident Fund and Citizen Investment Trust. Even smaller projects, to which banks have issued loans, are facing problems related to transmission lines and land acquisition.

In 2010-11, banks lending to the farm sector stood at 2.7% of their total lending. It was in fiscal 1992-93 when the sector received the highest percentage of lending from banks (24.8%), after which it continued to plunge.

Nepal Electricity Authority (NEA) is not signing power purchase agreements, transmissions lines are not completing timely and many projects developed by independent power producers are facing problems of cost overrun, which are risks to lenders.

The lack of human resources with technical expertise on the hydropower sector is making banks fearful for investing in hydropower.

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Source: TendersInfo (India)

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