Finance ministry urges central bank to ease auto loan provision

Kathmandu, January 26

The Ministry of Finance (MoF) has asked Nepal Rastra Bank (NRB) to bring down the loan-to-value ratio on automobile loans.

In line with the commitment expressed by the government to relax the auto loan provision with automobile dealers lately, Finance Minister Yubaraj Khatiwada informed that the central bank has been directed to do the needful and make the auto loan provision flexible.

“We have already asked NRB to make the auto loan provision flexible and the central bank has already started working on it,” said Khatiwada at a programme in the Capital today.

Earlier this week, Nepal Automobile Dealers Association (NADA) — the umbrella body representing automobile dealers — had formally urged Finance Minister Khatiwada to relax the cap on auto loans imposed by the central bank.

In November 2018, NRB had lowered the loan-to-value ratio to 50 per cent from 65 per cent. This means that automobile buyers have to currently make a down payment of Rs 1.5 million while purchasing a car whose value is Rs three million.

The government’s decision to squeeze financing facilities in the automobile sector was basically to control the growing import of vehicles, especially luxury vehicles, in recent years.

Of late, the government is seen to be positive towards easing loans in the automobile sector as the government has failed to meet its revenue target in the first five months of this fiscal.

Though the automobile sector is one of the top contributors of revenue to the government, the government’s policy to tighten import of luxurious goods, including vehicles had hit its revenue goals.

Following tightened policy in vehicle import, automobile dealers have been complaining that automobile business in the country has slumped by more than 60 per cent in recent months.

As buyers of vehicles rely heavily on credit from the banks while making a purchase, they are finding it difficult to issue huge down payments, informed Krishna Prasad Dulal, president of NADA. According to him, the demand for new vehicles has come down notably in recent months.

NRB’s statistics show that banks and financial institutions floated Rs 2.37 billion in auto loans till mid-December of this fiscal year, a sharp drop from Rs 9.65 billion worth of such loans disbursed during the same period of the previous fiscal year.