Kathmandu, July 3 -- Loans extended by banks and financial institutions to sectors where the Nepal Rastra Bank (NRB) requires mandatory lending have emerged as some of the biggest sources of non-performing loans. This has raised concerns over the effectiveness of the central bank's priority lending policy.

Banking data, regulatory disclosures and industry experts indicate that agriculture and micro, small and medium enterprises (MSMEs)-all identified as priority sectors by the central bank-have experienced a sharp deterioration in loan quality over the past two years.

Although these sectors were intended to expand financial inclusion and support productive investment, they have instead become increasingly vulnerable as slowing economic ...