Task Force Recommends Cutting Deprived Sector Lending to 4%, Calls for Targeted Credit Reform

The Banking Sector Reform Recommendation Task Force–2082 has proposed reducing the mandatory deprived sector lending requirement from the current 5 percent to 4 percent. The task force argues that such a revision is necessary to make rural and deprived-sector credit more targeted, effective, and results-oriented. According to the report, complaints have been growing that existing arrangements have failed to channel credit to genuinely poor and rural communities, indicating the need for policy recalibration rather than mechanical compliance.

The task force has recommended assigning a greater role to development banks, finance companies, and microfinance institutions in delivering small and micro loans. At the same time, it has suggested gradually reducing the share of directed lending obligations imposed on commercial banks and instead encouraging them to expand credit toward productive sectors that generate employment. The panel believes this shift would help reconnect the banking system with the real economy, where credit demand remains unmet despite ample liquidity.

On agricultural lending, the report stresses the need for banks and financial institutions to align credit policies with the agricultural production cycle. It notes that existing loan structures do not adequately reflect cropping seasons, harvest timelines, or income realization patterns. As a result, mismatches between moratorium periods, principal and interest repayment schedules, and actual farm cash flows have made agricultural credit less accessible for genuine farmers.

The task force has also highlighted the high overall cost of bank credit, particularly in agriculture. Expenses related to collateral valuation, local government recommendations, credit information bureau fees, insurance costs, land registry charges, and other administrative fees have significantly raised the effective cost of borrowing. To encourage agricultural activity, the report recommends coordination among federal, provincial, and local governments to reduce or streamline these costs.

Given agriculture’s status as a national priority sector, the task force has called for regulatory facilitation for secured and collateral-backed agricultural loans. This includes easing provisions related to loan-loss provisioning and risk-weight calculations. The report suggests that Nepal Rastra Bank should introduce the necessary regulatory adjustments to make agricultural lending more attractive for banks without undermining financial stability.

In the small and medium enterprise (SME) segment, the task force has recommended raising the existing loan ceiling of NPR 20 million. According to the report, this limit is insufficient to establish competitive, quality-driven manufacturing and production-oriented enterprises in Nepal. It argues that for project-finance loans secured primarily by project cash flows, the ceiling should be increased to reflect market realities.

Specifically, the task force has proposed revising MSME lending rules for commercial banks to include project finance loans of up to NPR 50 million for productive industries. However, it has suggested keeping the existing NPR 20 million ceiling unchanged for loans extended by development banks, finance companies, and microfinance institutions, at least for the time being.

Overall, the report signals a shift away from rigid percentage-based directed lending toward a more differentiated credit framework. The task force concludes that unless lending policies become more aligned with sectoral realities—particularly in agriculture and small enterprises—credit expansion will continue to fall short of delivering meaningful economic impact.