New Bank Expansion Criteria Revised

Nepal Rastra Bank, the central bank of Nepal has changed the provisions regarding establishment of new bank branches or head offices in the Kathmandu valley. Henceforth, banks and financial institutions will have to open three branches outside the valley before they will be allowed to open one branch in the valley. Earlier, they were allowed to set up branches in the valley after opening two branches elsewhere in the country.

Among the three branches required to be opened outside the valley, one branch must be established in one of the 14 districts identified by the central bank as having a very low presence of banks and other financial institutions. These districts are Bhojpur, Okhaldhunga, Manang, Rukum, Salyan, Jumla, Mugu, Humla, Kalikot, Dolpa, Jajarkot, Bajhang, Bajura and Darchula. Previously, this list contained 17 districts. Similarly, of the two remaining branches, at least one should be located outside the perimeter of district headquarters or municipalities. 

Compulsory Lending for B and C Class

Nepal Rastra Bank haas ordered development banks and finance companies to raise the level of their lending to the productive sector to 15 and 10 per cent respectively by mid-2016. The productive sector includes agriculture, energy, tourism and small and cottage industries. The provision was only for commercial banks previously.

The provision of compulsory lending to the productive sector was made to ensure sustainable investment in the productive sector so that it would create employment opportunities within the country and aid poverty alleviation. Now the financial institutions have to prepare annual action plans to implement the directive and set half-yearly targets in a way that can be monitored. 

NRB has already directed commercial banks to increase their lending to the productive sector to 20 per cent by mid-July 2015. The central bank has also increased the required level of lending to agriculture and energy to 12 per cent from the earlier 10 per cent for commercial banks. However, A class banks have to maintain their lending to these two sectors at 10 per cent within the current FY according to the latest directive. NRB has also defined agriculture sector loan, energy loan, tourism sector loan, cottage and small industry loan which have been categorized as productive sector loans.