KATHMANDU, March 19: Nepal Rastra Bank has permitted banks and financial institutions (BFIs) to exclude personal home loans up to Rs 6 million from real estate loans, a move which bank officials said will enable them to issue such loans relatively freely.
Issuing a directive on Friday, the central bank also relaxed provisions related to margin type lending - issued against the collateral of shares - in a bid to boost confidence of investors in the capital market.
“The BFIs now need not include personal home loans worth up to Rs 6 million while making calculations of real estate loan and complying with the cap imposed on it,” the central bank said in its directive.
However, if home loans crossed the Rs 6 million mark, it would be counted as real estate loans, a category that the central bank has tagged as ´speculative in nature´ and asked BFIs to limit their loans exposure.
Likewise, exemption has been provided only for loans pledged on the basis of personal income and that such loans should be extended to one person per family. The product paper of such loans should be developed by the BFIs themselves and approved by the board of directors.
“Such loans can be extended to one person per family only,” reads the directive.
The NRB officials said the new changes have been effected mainly to ease availability of home loans, something that had almost dried up after the NRB tightened loans on housing and real estate.
The central bank, amid soaring asset bubble, had more than a year ago imposed a cap on realty loans, seeking BFIs to limit their loans in the real estate and housing to 25 percent or less of their total lending portfolio. But as the BFI´s exposure in the sector was already too high, people were facing problems to get loans with ease.
“We anticipate the fresh relaxation to enhance people´s access to home loans,” said the source, clarifying that the central bank´s stance on real estate loans was still in place.
But considering the already high exposure and low liquidity growth, which has disabled the banks from rebalancing their portfolio, the central bank said it has allowed the BFIs to renew the real estate loans for this year, if the borrowers paid all outstanding interest dues.
Such relaxation has been provided largely to safeguard the interest of BFIs, which have been witnessing heavy default of principal and interest amount amid depressing real estate transactions and downturn prices.
“In the absence of this relaxation, BFIs, particularly financial institutions, would have suffered substantial rise in non-performing assets, shrinking their profit,” the official said.
Likewise, the central bank has also allowed BFIs to renew margin lending for once if the borrowers paid all outstanding interest dues.
Previously, the borrowers were required to pay at least 25 percent of the outstanding loans liability to get such loans renewed. BFIs were arguing that such a provision is deterrent to capital market growth.