Unproductive sector lending up as credit demand slows down in manufacturing sector

KATHMANDU: Credit flow of banks and financial institutions to the unproductive sector has started increasing after the demand for credit from the manufacturing industries and for infrastructure development declined due to the impact of COVID-19.

According to Nepal Rastra Bank (NRB), flow of consumption loans from banks and financial institutions have increased by 440 percent till mid-January of the current fiscal year.

The bank had disbursed consumption loans of Rs 119.52 billion till mid-January 2020. However, the loan flow under this heading reached Rs 823 billion in 2021. This is 17.65 percent of the total investment of banks. As of mid-January this year, banks and financial institutions have disbursed a total of Rs 466.16 billion loan.

Banks and financial institutions have been providing consumer loans against gold and silver and debentures. Such loans are also issued to fixed deposit account holders. Similarly, they have been investing in credit cards and other headings as well.

BFIs have invested Rs 78.39 billion in debenture securities, Rs 48.40 billion against collateral of gold and silver, Rs 36.83 billion issued for fixed deposit receipt holders and Rs 3.09 billion for credit cards.