NRB Takes Action Against CEOs of 15 Financial Institutions for Misuse of Concessional Loans

Nepal Rastra Bank (NRB) has taken action against the Chief Executive Officers (CEOs) of 15 banks and financial institutions for the misuse of concessional loans provided at subsidized interest rates. The CEOs of seven development banks and eight finance companies were issued warnings after irregularities were identified during the second quarter of the current fiscal year 2024/25.

The development banks under scrutiny include Mahalaxmi Development Bank, Kamana Sewa Development Bank, Muktinath Development Bank, Salpa Development Bank, Lumbini Development Bank, Garima Development Bank, and Saptakoshi Development Bank. Similarly, finance companies such as Samriddhi Finance, Pokhara Finance, Progressive Finance, ICFC Finance, Janaki Finance, Central Finance, Reliance Finance, and Goodwill Finance were also warned.

Last year, NRB appointed experts to evaluate the effectiveness of concessional loans, refinancing, and business continuity loans amid concerns over their proper utilization. The study revealed instances of misuse or suspected misuse, prompting NRB to seek clarifications from the institutions involved. Internal audits conducted by the banks and finance companies also flagged improper use of concessional loans.

Based on these findings, NRB issued warnings to the CEOs under Clause (A) of Sub-section 2 of Section 100 of the NRB Act, 2058 BS.

Concessional loans, intended to boost production and support targeted sectors, have reportedly been misused for purposes such as real estate purchases and personal expenses, according to an NRB source. Critics argue that while the volume of concessional loans has grown, their effectiveness remains questionable due to cases of misuse by individuals with access to such loans.

Although the budget for the previous fiscal year proposed restructuring the interest subsidy program and reviewing its procedures, these reforms have yet to be implemented. NRB has not made public its detailed findings from last year’s study on the effectiveness of concessional loans.

Under the Integrated Procedure for Interest Subsidies on Concessional Loans, banks provide loans in 10 key sectors, including commercial agriculture, animal husbandry, educated youth self-employment, Projects for youth returning from abroad, women’s entrepreneurship, Dalit business development, higher technical and vocational education, earthquake-affected housing construction, textile industries and  youth self-employment initiatives.

Loan amounts range from Rs 500,000 to Rs 5,000,000, with banks allowed to set interest rates by adding up to 2 percentage points to their base rates. The government offers a 5% interest subsidy on these loans, with a higher subsidy of 6% for women’s entrepreneurship loans. However, loans exceeding Rs 5,000,000 are eligible for only a 2% subsidy.

As of mid-December in fiscal year 2024/25, banks and financial institutional have disbursed concessional loans worth Rs 109 billion to 113,000 individuals. However, banks have not  issued new loans since a year now due to delays in receiving interest subsidies from the government.