KATHMANDU: Nepal Rastra Bank today relaxed residential housing and real estate loan, and loan against shares to give a respite to cash-strapped banks and financial institutions.
“If a borrower pays all the outstanding interests, one can renew real estate loan for a year,” said central bank Spokesperson Bhaskar Mani Gyawali.
Similarly, the personal home loan limit has also been increased to Rs 8 million from Rs 6 million.
The FIs have lent around Rs 6 billion against shares and Rs 137 billion on real estate and the housing sector. Earlier in March, the central bank had created a separate category for the residential home loans of up to Rs 6 million as residential home loans — that would not be dealt as the part of real estate and housing loans — to encourage first home buyers and give some relief to BFIs.
However, bankers said it would only postpone the problem. “The borrowers will be encouraged to pay interest but other economic indicators must also support,” said NMB Bank CEO Upendra Poudel.
The renewal provision is expected to give BFIs a chance to clean their balance sheet and give boost to their profits as the stagnation in ballooning real estate prices has frozen their loan recovery limiting their lending capacity.
NRB’s breather will definitely benefit FIs and the construction sector, as both were under pressure.
As FIs’ real estate and housing portfolios swelled dangerously posing a high concentration risk, NRB had capped their flow credit to 25 per cent of the total lending, fearing overflow on unproductive sector could lead to systemic risk in FIs. As a result, the real estate, rent and the professional service sector that has posted 3.6 per cent growth in 2009/10 is expected to grow by only 2.6 per cent this year, according to the Economic Survey.
The sector has recorded an average of 6.1 per cent growth in the last five years and its contribution to GDP stood at 8.2 per cent.
The freezing prices of real estate and housing has tightened the banks and FIs’ liquidity situation, and they started struggling for loan recovery. “NRB has provided respite to the real estate and housing sector that will eventually help BFIs,” said Poudel.
Similarly, NRB today completely relaxed loan against shares.
Earlier, one could get only 60 per cent loan of the share value.