Kathmandu, June 29:

Boom in consumer finance in recent years has led to a radical change in urban living patterns, triggering a rapid growth in the purchasing power of the middle-class. It has also given banks a new niche for investment.

Rapid urbanisation is what most commercial banks are cashing in on with products that help meet the need of people.

Recognising the value of offering a wide range of services not only to the corporate sector but also to individuals, banks have been aggressively offering various consumer loans as required by individuals, helping people realise their dreams. Home loan has become an important area in which bankers are happy loosen their purse strings.

In the last couple of years, the market for consumer loans has become so competitive that an individual with a regular source of income can pay easy Equated monthly installments (EMI) and own a house. These loans ensure that you are not burdened to pay a huge amount at once. The payment is spread over a maximum duration of 20 years or according to a mutual understanding between a consumer and the bank. From a tiny household gadget to a dream home, a consumer can get loans and go on paying easy EMIs.

Between most commercial banks and financial institutions, there is a cutthroat competition

for market share, which is ultimately benefiting customers. The competition has resulted in

cutting down interest rates as well as introducing other features associated with home loans. As a result, banks are also providing loan for house decorations.

Though interest rates vary from bank to bank, from seven per cent to ten per cent depending upon the tenure, the purpose of home loans is common - the purchase of a house or apartment, construction, renovation extension or even decoration.

Till some time back, only private sector banks and financial institutions were trying to cash in

on the new trend. But entry of the two largest public sector commercial banks - Nepal Bank Ltd (NRB) and Rastriya Banijya Bank (RBB), in the consumer financing sector, has added more competition in this segment.

“For an individual with a regular income, owning a house is no longer a distant dream,” says, Anil Poudel, management consultant, Rastriya Banijaya Bank, one of the oldest banks in Nepal. The government

undertaking RBB has recently entered into the retail-lending sector sensing this to be the safest investment portfolio.

“More than 300 people have taken home loans from us within this year,” says Mina Sainju, chief consumer lending, Nepal Bank Ltd (NBL), the oldest bank in Nepal.

Due to a low risk factor and good returns, most banks have decided to opt for the home loan segment, says a banker.

Recent figures show that the real estate business, especially in urban areas, is doing very well. Competitive interest rates on home loans and loans that cover more than the cost of house are proving to be an irresistible combination for middle class people with stable earnings. The EMI repayment method with repayment tenure of up to a maximum of 20 years has been another driving force.

“The response has been tremendous. RBB has posted a growth of over Rs 15 million in home loan segment only,” says Poudel. RBB is offering house loans at an interest rate of

seven to nine per cent per annum for up to a maximum period of 15 years.

Till a few years back, in terms of investment, retail lending was not considered big, but it is expanding now. “Today the home loan segments cover up to five to ten per cent of the total retail loan segment,” says Prithvi Narayan Shrestha, credit manager at the Machhapuchhre Bank Ltd.

The traditional belief that banking services are for businessmen and the needy only, is fast changing. Today’s fast growing middle-class segment and a changing life-style have surpassed the expectation of the banks. And retail lending like home loan is fueling it. Some banks have brought special schemes to woo customers like NIC, which has brought ‘NIC Ghar Subidha’.

NIC Bank is providing up to 110 per cent money for construction and renovation with a maximum loan repayment period of 20 years. The total loan amount ranges from Rs 0.5 million to Rs 15 million.

According to Ajaya B Shah, head of Retail Financial Services, Laxmi Bank, LBL offers home loan ranging from Rs 0.5 million to Rs 15 million, the maximum repayment period

being 15 years.

The present boom in consumer financing, especially home loans, is expected to continue in the coming days as banks feel safer with this product.

“The rising demand for housing loans shows that it has a bright future. The rise in property prices is one of the contributing factors in banks’ increasing presence in the housing sector. We will continue to invest in housing sector with greater commitments”, Shah adds.

With more housing companies in the field and their tie-ups with banks, the involvement of banks in the construction sector is certainly going to grow.

“Apart from that, easy availability of home loans is also fuelling housing colonies,” says Umesh Thapa of Habitat development Engineers, the developers of The Paradise at Dhapasi. Habitat development Engineers has a tie-up with the Nepal Investment bank Ltd (NIBL) and Citizen Bank Ltd, according to him.

Banks finance up to 70 per cent of a house cost. The remaining amount, along with the processing charge, which is one per cent in almost all the banks, is borne by the buyer. Some banks offer up to 80 per cent also. “We offer up to 80 per cent in some cases to our clients,” Shrestha says.

“The processing fee is one per cent of the total loan amount. EMI varies according to the loan tenure, the loan amount and the interest rate,” says Sainju.

Hemanth Raj Angdembay, business development manager, Standard Chartered Bank Ltd, is also optimistic about the growth in housing complexes that has helped fuel the growth of the banking sector.

“A tendency and culture of taking loans for construction of housing is rising. People are constructing houses by taking loans rather than from their own savings. On the other hand, banks are providing easy financing options within cheap interest rates,” he says, adding that Standard Chartered’s key focus is on product innovation.

However, almost all financial institutions are offering competitive rates due to cut-throat competition in the retail-lending segment.

“It has, to a certain extent, also allowed banks to reduce their liquidity problems with profitable avenues for investment,” says a banker adding that retail financing is the demand of the day as lifestyle, basic needs and change in the attitude of people has opened up new avenues.

Banks have seen these opportunities in retail lending and have rapidly ventured into this sector.

Not only banks but also most housing companies like Civil Homes happily make arrangements to arrange for loans to customers.

The banks have signed agreements with housing companies so that interest rate could be maintained at a lower level.