Nepal Rastra Bank eases cap on auto, home loans
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.