KATHMANDU, August 15 :Nepal Rastra Bank (NRB) has issued a circular to bank and financial institutions (BFIs) for implementing provisions related to house and auto loans ceiling as well as measures to send them to local units, among other provisions, announced in the Monetary Policy for Fiscal Year 2017/18.
This means, the BFIs will now be able to float loans of up to 65 percent of the valuation of motor vehicles. So far, they were allowed to extend only 50 percent of the valuation. While the new monetary policy had raised the loan to value ratio to 65 percent from 50 percent, the delay in issuance of circular has made it difficult for the BFIs to increase ceiling for auto loans for private use as announced in the monetary policy.
Auto dealers were complaining that the delay by the central bank to increase loan to value ratio was hitting their business as the festival season draws nearer when the demands for cars hit peak.
Such limit has now been set at 80 percent for electric cars while it is not applicable for public vehicles having seat capacity of up to 40 as well as vehicles used in construction, tourism, health and transportation sectors, according to the circular.
Through the mid-term review of the Monetary Policy of 2016/17, the NRB had reduced the lending limit for personal auto loans to 50 percent of the valuation in the wake of credit crunch problem created by aggressive lending of commercial banks to less productive sectors like automobiles, real estate and stock market. Before the review, BFIs used to finance up to 90 percent of the valuation of car.
The new circular has also instructed the BFIs to increase lending limit for residential home loans to Rs 15 million.
Apart from offering incentives to the BFIs opening their branches in the unbanked local units like providing Rs 10 million of interest-free loans up to one year for each 2,500 new bank accounts, the central bank has warned the commercial banks and development banks of needful action if they do not go to the local units as per the new provision. The central bank has also decided to allow development banks to open their branch offices in local units where commercial banks are yet to reach, according to the circular.
The central bank said that it would allow commercial banks or development banks opening five branch offices in unbanked local units to open a branch office in the Kathmandu Valley. Similarly, the circular also includes a new rule on the priority sector lending requirement announced in the monetary policy. According to the rule, a commercial bank must float at least 25 percent of its total loans to the productive sectors by mid-July 2018.
By increasing the productive sector lending requirement for banks, the central bank has sent a message that it wants the banking industry to channelize more financial resources to priority sectors like agriculture, energy, tourism and small and medium enterprises which are the major sector of economic activities in the country to support the economic growth target of the government.
According to the central bank, the 25 percent directed lending requirement includes 10 percentage points to agriculture sector, 5 percentage points to hydropower sector, 5 percentage points to tourism sector, and remaining 5 percentage points to other sectors as prescribed by the NRB as productive sectors.
Commercial banks were earlier required to float 20 percent of their lending to productive sectors, including 15 percentage points of the credit to agriculture and energy sector combined.