In order to boost investment in the productive sector, Nepal Rastra Bank (NRB) has mandated that commercial banks extend loans in accordance with its instructions for priority sectors. The central bank's monetary policy stipulates that commercial banks must allocate 15% of their total loans to agriculture and micro, domestic small, and medium enterprises (MSMEs), and 10% to the energy sector, totalling 40% of loans to priority sectors. However, banks have struggled to meet these targets.

NRB set a deadline of June 2027 for banks to achieve these lending targets but has shown flexibility in achieving the target by allowing banks to meet short-term goal of 11% in agriculture and MSMEs and 6.5% in energy by June 2024. Despite many banks meeting their targets in agriculture and energy sectors, they have not fully met the requirements for loans to micro, domestic, small, and medium industries.

According to NRB's instructions, banks should allocate at least 15% of total loans to the agricultural sector by June 2027, with incremental targets of 11% by June 2024, 12% by June 2025, and 13% by June 2026. As of June 2024, government banks have provided 17.98% of their loans to agriculture, while private banks have allocated 12.31%. While many private banks have met the target, Prabhu Bank is an exception.

In the energy sector, banks are required to provide 6.5% of their loans by June 2024, increasing them to 7% by June 2025, 8% by June 2026, and 10% by June 2027. N.I.C. Asia, Standard Chartered, and Agricultural Development Bank have not met the prescribed loan allocation in this sector.

Investment in micro, domestic, and small enterprises has also been inadequate. As of June 2024, the banks' investment in this category reached only 8.29%, falling short of the 11% target. Only the government banks Agricultural Development Bank, Rastriya Banjiya Bank, Nepal Bank, and the private sector’s NIC Asia Bank have invested as per the requirement.

Due to the banks' failure to adequately invest in micro, domestic, and small enterprises, the Nepal Rastra Bank (NRB) increased the loan limit in its monetary policy for the current fiscal year. Previously, loans under Rs 100 million, including those directly benefiting the poor, were classified as loans to micro, domestic, and small enterprises. This year, the NRB raised this threshold to Rs 200 million, encouraging more investment in these sectors.

NRB has extended the deadline for meeting these investment targets, originally set for June 2023, to June 2027. NRB spokesperson Ramu Poudel stated that banks have been instructed to identify and prioritize areas for increased investment in productive sectors. He said, “NRB's goal is to ensure that bank loans flow into productive sectors.”