Kathmandu, November 6

Sad news for those planning to purchase automobiles as the central bank has raised the amount customers need to pay up front as down payment while buying private vehicles on loan.

Issuing a directive today, Nepal Rastra Bank has lowered the ratio of loan to value of vehicles purchased (loan-to-value ratio) to 50 per cent from the existing 65 per cent. This means automobile purchasers will have to compulsorily pay Rs 1.5 million down payment while purchasing a car whose value is Rs 3 million. The central bank’s decision to squeeze financing facilities in the automobile sector is basically to control the growing import of vehicles, especially luxury vehicles, in recent years.

“Data shows that vehicle import is growing at an alarming rate which is not good for the economy even though the automobile sector is a major revenue contributor to the government,” said Narayan Prasad Poudel, spokesperson for NRB.

Likewise, the central bank’s decision to squeeze auto financing also aims to address the credit crunch scenario in the market by controlling capital flight as a large chunk of money goes abroad while importing vehicles.

As per government statistics, the number of vehicles in Nepal has doubled to 3.2 million units in the last eight-year period till fiscal year 2017-18.

Along with leaving a negative impact on customers, the NRB’s decision is also expected to hit the sale of private vehicles as dealers claim that more than 60 per cent of the vehicles sold in the market is through financing. “As high taxes have made vehicles costlier in Nepal, people seek financing from banks and financial institutions while purchasing vehicles. However, squeezing auto financing will certainly discourage potential buyers,” said Saurabh Jyoti, chairman of Syakar Trading Company and former president of Nepal Automobile Dealers’ Association.

Jyoti clarified that the automobile industry was not an unproductive sector for lending as the sector contributed almost 20 per cent to the total revenue that the government collected every year. More importantly, no economy could grow by attempting to squeeze the automobile industry, he stated.