Nepal | November 15, 2019

NRB eases cap on auto, home loans

Sujan Dhungana

Nepal Rastra Bank Governor Chiranjibi Nepal introducing Monetary Policy 2017-18, in Kathmandu, on Sunday, July 9, 2017. Photo: Balkrishna Thapa Chhetri/THT

Kathmandu, July 9

Nepal Rastra Bank has eased the cap on auto and home loans effective from July 16, as the credit crunch prevalent in the domestic market has eased. Unveiling the monetary policy for fiscal 2017-18 on Sunday, the central bank raised the loan-to-value ratio on auto loans for private vehicles to 65 per cent from the existing 50 per cent. NRB also increased the cap on home loans to Rs 15 million from the existing Rs 10 million.

Giving some relief to those planning to purchase private vehicles or houses in the new fiscal year, Nepal Rastra Bank (NRB) has eased the loan cap on auto loans and home loans effective from July 16. The central bank has eased the loan cap on automobile and home loans as the credit crunch that was prevailing in the domestic market has eased now.

Unveiling the Monetary Policy for fiscal 2017-18 today, the central bank raised the loan-to-value ratio on auto loans for private vehicles to 65 per cent from the existing 50 per cent cap. Similarly, NRB also increased the cap on home loans to Rs 15 million from the existing Rs 10 million.

This review in the loan-to-value ratio on auto loans means that customers can now purchase a private vehicle by paying only 35 per cent down payment of the value of the vehicle.

As a move to reduce the credit flow in the unproductive sector, NRB had barred banks and financial institutions from extending loans that amounted to more than 50 per cent of the vehicle’s price through the mid-term review of the Monetary Policy of the current fiscal year in February.

Stakeholders of the domestic automobile industry, especially auto dealers, had criticised this move stating that it would affect the growth of automobile sector and hit government revenue. Moreover, automobile dealers have claimed that the imposition of cap on auto loans has reduced the sales of private vehicles by almost 40 per cent since the new rules were introduced.

Meanwhile, the Monetary Policy for 2017-18 has also fixed the loan-to-value ratio on auto loans for private electric vehicles at 80 per cent. The cap on electric vehicles is the same as other vehicles at present.

“The hike in auto loan cap will certainly give temporary relief to automobile dealers who have been witnessing tepid sales of private vehicles since the last few months,” said Anjan Shrestha, president of Nepal Automobile Dealers Association (NADA) — the umbrella organisation representing domestic auto dealers.

Though auto dealers said that the extended auto loan cap would give momentum to sales of vehicles, they opined that the government should leave it to the banks and financial institutions to fix such caps.

“Automobile sector too is a productive sector as it has been generating huge revenue for the government and is also employing thousands of people. Government policies should not try to control the flow of loans in the sector and rather should let financial institutions fix the rates on their own,” added Shrestha.

Similarly, the hike in home loan cap is also expected to facilitate those planning to purchase new houses, as they will be able to get credit of up to Rs 15 million from banks and financial institutions.

Meanwhile, the Monetary Policy has reduced the cap on real-estate sector lending in Kathmandu Valley. The Monetary Policy for the next fiscal year has barred banks and financial institutions from issuing more than 40 per cent of the value of the property, which is taken as collateral in Valley’s real-estate business.

Earlier, such cap on real-estate sector lending was 50 per cent of the property’s value.


In their opinion

NRB didn’t ensure sustainability on interest rate on loan

Pashupati Murarka, President, FNCCI

The Monetary Policy 2017-18 has failed to ensure sustainability on interest rate on loan. The high rate of interest rate on loan being taken by banks and financial institutions and the instability in the interest rate are the chief problems that industries are facing today. Though we have repeatedly urged the government and Nepal Rastra Bank (NRB) to ensure investors that they get loans at low interest rate, the NRB did not address this problem of the private sector in the new monetary policy. Similarly, the expansion of NRB’s refinancing fund to Rs 200 million from existing Rs 100 million is not enough. Likewise, the Monetary Policy 2017-18 will certainly hit the real estate sector as the cap on real-estate sector lending in Kathmandu Valley has been reduced to 40 per cent of the value of the property from the existing 50 per cent.

— Pashupati Murarka, Immediate Past President, FNCCI

 


Suggestions of the private sector have been overlooked

Interview with Hari Bhakta Sharma, the President of CNI, at Hattisar in Kathmandu, on Sunday, February 12, 2017. Photo: Balkrishna Thapa Chhetri/THT

The government has overlooked all the major suggestions that the Confederation of Nepalese Industries (CNI) had given for incorporation in the Monetary Policy for 2017-18. Though we asked Nepal Rastra Bank (NRB) to reduce the cash reserve ratio (CRR) for banks and financial institutions (BFIs) by one percentage point as doing so would address the credit crunch and increase BFIs’ loanable funds, our suggestion has been ignored in the monetary policy. Similarly, the Monetary Policy 2017-18 has not given enough emphasis on promoting investment and economic growth in the country. Though NRB has increased its refinancing fund to Rs 200 million from existing Rs 100 million, this can hardly facilitate big projects in the country. CNI believes that such refinancing fund should be of at least Rs 100 billion.

— Hari Bhakta Sharma, President, CNI


Policy won’t support achievement of economic growth target

Monetary Policy 2017-18 has tightened the credit expansion to keep inflation at the desired level. I think this monetary policy will not support the government’s target of achieving economic growth rate of 7.2 per cent because private sector development is fundamental for accelerated growth. We expected the central bank to address the current scenario of credit crunch by reducing the statutory liquidity ratio as banks have flush liquidity at the moment. The monetary policy has taken an objective to minimise the volatility of interest rates, expand credit to the productive sector, expand financial outreach at remote places, which are commendable. It has also corrected the direct lending provision to the deprived sector by commercial banks.

— Rajan Singh Bhandari, Former President, Nepal Bankers’ Association

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A version of this article appears in print on July 10, 2017 of The Himalayan Times.


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