E-Kantipur

KATHMANDU, MAR 19 -

Purchasing a home or an apartment through bank financing will now become much easier.

With the Nepal Rastra Bank (NRB) delisting home loans up to Rs 6 million from the real estate lending category, bank and financial institutions (BFIs) can now sanction such loans without much difficulty.

According to the central bank definition, home loan means the amount of credit that BFIs give to individuals to build or buy houses or apartments for their own use or for leasing on the basis of their repayment capacity with their regular income.

However, BFIs can provide such loans only once to a family, according to the NRB circular issued for BFIs on Friday. The central bank move follows the recent monetary policy review that talked about easing realty sector loans.

Although home loans are considered secure investment, BFIs had been facing difficulties to sanction such loans due to their categorisation as real estate loans. Due to BFIs’ higher loan exposure to the realty sector, they are failing give home loans. “The circular has been issued to improve the middle class people’s access to such loans,” said Bhaskar Mani Gyawali, spokesperson for NRB.

With the introduction of this provision, not only people having regular income can own a home easily, but BFIs can also lend more to commercial housing projects, as their realty loan exposure will be reduced after the delisting of home loans from the realty sector loan category.

“Now, banks with comfortable liquidity situation can make extra lending to both personal homes and commercial housing projects,” said Ashoke Rana, president of Nepal Bankers’ Association (NBA). As of the first quarter of the current fiscal year, residential loans (home loans) of commercial banks stand at Rs 35.65 billion. With the exclusion of such loans from real estate loan category, banks’ realty loan exposure will come down significantly from the current Rs 100 billion.

However, the central bank has not changed the current exposure limit—30 percent of total loan exposure—for the current fiscal year. Banks will have to bring down their exposures to 25 percent within the next fiscal year.

Given realty borrowers facing difficulty to repay their loans due to stagnation in realty transactions and price, the central bank has allowed BFIs to renew such loans for once within the current fiscal year if borrowers pay their outstanding interest. Earlier, they were compelled to pay at least 25 percent of their principle along with the interest to get their loans rescheduled. “Many realty borrowers will now feel relieved with this provision,” said Min Man Shrestha, general secretary of Nepal Land and Housing Developers’ Association. “The central bank has, for the first time, addressed the demands of the realty sector.”

Both bankers and realty traders had been demanding that the central bank make realty lending flexible after possibilities of huge defaults started spearing high with the existing tough measures.

The new circular of the central bank has also eased the margin lending provision (loans against shares as collateral). Borrowers of margin lending can renew their loans for once this year if they pay all outstanding interest. Earlier, they could renew their loans only after paying 25 percent of the principle along with interest.

Bankers and stock investors had been lobbying hard with the central bank to allow the renewal of such loans as long as borrowers pay cent percent interest. “This provision will help the crumbling stock market rise again with increased investors’ confidence,” said NBA President Rana. This provision, however, will not be applicable in the event that the loan has been awarded for other purposes and shares were put as securities.

Posted on: 2011-03-19 03:36

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