The prolonged liquidity crunch that banks and financial institutions (BFIs) grappled with in the last fiscal year has affected their credit flow to the industrial sector. The Nepal Rastra Bank (NRB) in a new report has said the total loans of BFIs to the industrial sector slumped by 8.5 percent in FY 2021/22. The credit flow was also affected as interest rates surged due to the shortage of loanable funds in the financial system making it difficult for the private sector to borrow from BFIs.  According to the new report released by NRB titled 'Economic Activities Report (Integrated) 2021/22', BFIs disbursed a total of Rs 1251.96 billion in loans to the industrial sector in the last fiscal year which was Rs 1367.75 billion in FY 2020/21. While BFIs’ credit to the industrial sector declined, the extension of loans to the services sector increased by 13.7 percent in the last fiscal year. According to NRB, BFIs disbursed Rs 1857.14 billion in loans to the service sector in FY 2021/22. Of the total loans disbursed by the BFIs in the last fiscal year, 39.6 percent went to the services sector and 26.7 percent to the industrial sector.

Of the total industrial loans, 1.2 percent was disbursed to mining industry, 19.6 percent to agriculture, forestry, and beverage industry, 40 percent to non-food product manufacturing industry, 13.9 percent to construction industry, 19.7 percent to electricity, gas, and water industry and 5.6 percent to metal product, machinery, and electronics industry. According to the report, Bagmati Province had the highest loan disbursement of Rs 842.66 billion while Karnali Province had the lowest disbursement of Rs 3.67 billion.

The Bagmati Province's share in industrial loans is a whopping 67.3 percent. According to the report, the share of Province 1 is 9.7 percent, Madhesh Province is 8.2 percent, Gandaki Province is 3 percent, Lumbini Province is 9.5 percent, Karnali Province is 0.3 percent and Sudur Paschim Province is 2.1 percent. The report shows, of the total loans disbursed to the services sector, 51.6 percent went to wholesale and retail, followed by 11.8 percent to finance, insurance, and real estate, 10.5 percent to tourism, and 5.5 percent to transport, storage, and communication and 4.2 percent to other services sub-sectors.