Banks Hesitant to Invest in Small Loans After Defaults

In recent years, banks have become hesitant to invest in small loans as defaults have increased. The highest rate of bad loans has been observed in SME (Small and Medium Enterprises) loans, leading banks to refrain from increasing investments in this sector. Construction sector loans have shown the most significant defaults, followed closely by SME loans. Consequently, banks are focusing more on recovering these loans rather than investing in new ones.

- Issues After Loan Defaults:

  - High rate of bad loans in SME (Small and Medium Enterprises) sector.

  - Significant defaults also observed in the construction sector.

  - Banks are reluctant to increase small loan investments due to recovery issues. 

- Current Loan Investment Status:

  - By the end of the current fiscal year's Chaitra, banks have invested 9.37% in micro, household, small, and medium enterprises.

  - The central bank has mandated an 11% investment in these sectors by the end of Ashar.

  - Despite a longstanding requirement of 15% investment in small industries, banks have failed to meet this target, leading to yearly extensions by the central bank. 

- Role of the Central Bank:

  - The central bank has been extending the deadline for achieving the 15% investment target in small industries annually.

  - Last year’s monetary policy extended the deadline to Ashar 2085. 

- Bank Issues and Solutions:

  - Main Issue: High risk associated with small loan investments causing banks to hesitate.

  - Potential Solutions:

    - Initiative by the central bank to establish a loan security fund.

    - Implementation of special grant programs for small loans.

    - Providing training and consultancy services to improve financial management of small industries. 

- Loan Status of Various Banks:

  - Low Loan Investment:

    - Standard Chartered Bank: 2.17%

    - Himalayan Bank: 3.56%

    - Everest Bank: 3.59%

    - Prabhu Bank: 4.41%

    - Nepal Investment Mega Bank: 4.96%

    - Nepal SBI Bank: 5.81%

  - High Loan Investment:

    - Agricultural Development Bank: 26.06%

    - Rastriya Banijya Bank: 20.61%

    - Nepal Bank: 18.78% 

- Importance of Small Loan Investment:

  - Investing in small loans by banks contributes to the overall economic development of the country.

  - Development of small industries ensures the return of bank loans.

Conclusion

  - Despite banks’ hesitancy to invest in small loans, various improvement measures can be adopted.

  - Strong policies by the central bank, establishment of a loan security fund, special grant programs, and improving financial management can encourage small loan investments.

  - This will benefit banks and play a crucial role in the country's economic development.