Commercial banks await Rs 16 billion in interest subsidies for concessional loans

Credit crunch looms as commercial banks grapple with liquidity mismatch

KKATHMANDU: Commercial banks in Nepal are facing delays in receiving approximately Rs 16 billion in interest subsidies from the government for concessional loans provided under various government-backed programs. These loans, designed to boost production, promote entrepreneurship, and support sectors like agriculture, women-led businesses, and youth enterprises, offer borrowers reduced interest rates, with the government covering a portion of the interest cost.

According to banking sources, the government has not released the subsidy funds for over two and a half years, leading to financial strain on banks. This delay has prompted many banks to halt the disbursement of new concessional loans, as they are forced to charge borrowers the full interest rate until the subsidies are cleared. Borrowers, expecting lower rates, are now burdened with higher repayments, causing frustration and undermining the purpose of the loan programs.

The Nepal Rastra Bank (NRB) has acknowledged the issue, stating that the Ministry of Finance recently paid Rs 5.5 billion of the outstanding amount, reducing the arrears from Rs 21.5 billion to Rs 16 billion. However, the remaining funds are yet to be disbursed, and banks remain cautious about extending new loans under the scheme. “The delay in subsidy payments has disrupted the flow of concessional loans, affecting both banks and borrowers,” said a senior NRB official.

The concessional loan program, formalized in 2075 BS (2018 CE), includes 10 types of subsidized loans aimed at supporting commercial agriculture, livestock, women entrepreneurs, and other priority sectors. Despite its objectives, the program’s effectiveness is now at risk due to the funding shortfall. Bankers have warned that without prompt government action, the initiative could lose credibility, further discouraging participation from both financial institutions and borrowers.

The Ministry of Finance has assured that the remaining Rs 16 billion will be paid gradually, but no specific timeline has been provided. Meanwhile, borrowers continue to face uncertainty, and banks are urging the government to clear the dues to restore confidence in the program.

Fiscal Nepal |
Monday May 19, 2025, 11:04:40 AM |


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