The central bank had last week brought down the interest rate by one percentage point to two per cent on such loans that banks and financial institutions avail from the NRB and had also directed BFIs to lower the maximum interest rates on loans floated under general refinance to five per cent from up to seven per cent that they had been levying.

However, the private sector has said that the availability of such loans should be at minimal interest rate amid such crisis and that banks should not keep high profit margins.

“Businesses have been suffering since months and are in dire need of resources to sustain their businesses and workers.

In such a context, banks should keep minimal margin and provide such loans at three per cent to the needy,” said Shekhar Golchha, senior vice-president of the Federation of Nepalese Chambers of Commerce and Industry.

Along with this, Golchha also said that the government should ensure availability of special loan facility at subsidised interest rate from BFIs to help the private sector revive their businesses.

Along with further lowering interest rates on refinancing loans and all other types of loans, the private sector has appealed to the government to raise the size of the refinancing fund of the central bank to at least Rs 200 billion.

“It would be highly appreciable if the business community gets loans through the refinancing facility at four per cent. Equally necessary is to double the size of the central bank’s refinancing fund,” said Kamalesh Kumar Agrawal, general secretary of Nepal Chamber of Commerce.

NRB has raised the size of its refinancing fund twice since the lockdown to Rs 100 billion from Rs 50 billion.

Meanwhile, bankers have said that banks have been taking minimal profit margin on refinancing loans while they are not looking for any profit margins on such loans issued to small and medium enterprises.

“While the administrative cost comes to around two per cent, we have been keeping two per cent margin on such loans. Moreover, the cen tral bank has allowed us to keep up to 4.4 per cent margin on such loans,” said Bhuwan Dahal, president of Nepal Bankers’ Association.

Refuting the rumours that banks are keeping high margins on loans, Dahal said that even banks believe that they should not look for profits especially from those businesses and firms that are facing losses due to the pandemic.

“During the earthquake, NRB had provided us refinancing loans at zero per cent interest and we had provided such loans at two per cent to the public without keeping any profit margin. As part of our corporate social responsibility, banks don’t look for profits during such crisis,” he added.

Meanwhile, NRB has asked BFIs to focus on providing refinancing loans primarily to small and medium enterprises.

“Such loans are especially for those who cannot afford loans at the market interest rate. It is the collective responsibility of banks and the central bank to ensure that such loans are channelled towards small and medium enterprises,” said Gunakar Bhatta, spokesperson for NRB.

source: the himalayan times, 5 may 2020