Kathmandu, December 28

Nepal Rastra Bank (NRB) — the central monetary and regulatory authority — has decided not to accept any new applications for operating companies that aim to provide hire purchase loan facility to their customers.

The central bank has said it will not accept any new applications till the central bank reviews the Hire Purchase Company Approval Procedures, 2014.

According to Rajendra Pandit, joint spokesperson for NRB, the regulatory mechanism to regulate such companies is not strong and the central bank will accept new applications only after reviewing the legal provisions and formulating the regulating mechanism.

“Eight such companies are currently in operation and seven more are in the pipeline. The major question is to regulate such firms, so the central bank has decided to halt the process of accepting new applications,” Pandit stated.

Some authorised dealers of two- and four-wheeler vehicles have taken the licence to operate companies to provide hire purchase loans to their clients.

As per the provision of the procedures, the central bank can provide the operating licence to the interested companies that have paid-up capital of Rs 100 million and same amount of net worth. And the operating licence has to be renewed every two years.

NRB has also fixed the maximum credit ceiling for such firms. The companies can borrow up to 10 times of its net worth from banks and financial institutions and the spread rate should not exceed 3.5 per cent. Such companies are not allowed to charge any additional fees from the borrowers besides the amount that they have taken while issuing the loans.

Similarly, such companies are not allowed to issue any other type of loans. The companies are also directed to submit their financial reports to the central bank biannually — in mid-July and mid-December.