With high loan exposure to the real estate sector leading banks and financial institutions (BFIs) towards crisis, the Nepal Rastra Bank (NRB) is gearing up to further relax realty loans. The central bank is all set to expand the size of home loans not to be categorised under the realty loan, according to an NRB source. In an effort to relax realty loans, the central bank had provisioned that home loans up to Rs 6 million will not be categorised under realty loan two months ago. This has helped BFIs reduce the size of realty loans and opened the doors for further lending. Home loans are considered secure as they are awarded to those having regular income. The monetary policy had told BFIS to reduce the size of housing loans to 25 percent and realty loans to 10 percent within two years. The central bank is also planning to allow BFIs to restructure realty loans for an additional period. “These are some measures to be taken by the central bank to ease the repayment of realty loans,” said the NRB source. To ease the realty loan payment, the central bank had earlier allowed BFIs to renew realty loans if loanees paid all outstanding interest. Vibor Bank and People’s Finance are the latest examples of the effect of non-repayment of realty loans. Vibor has admitted in its third quarterly report that it incurred a loss due to recovery problems in realty and housing loans. Likewise, People’s Finance has about 60 percent loan exposure to the realty sector, according to NRB. With stagnation in realty trading, loan defaults are on rise. Recovery problems of these loans along with stagnation in deposits growth are creating liquidity crunch in the banking sector. The central bank has already opened four doors to address the protracted liquidity crunch. It has decided to issue repo (central bank providing cash against treasury bills of BFIs) twice a week. It introduced the lender of last resort policy and rescued Vibor from acute liquidity crunch by providing Rs 500 million. The NRB has also been providing refinancing facility against good loans for six months and made special refinancing arrangement under which BFIs can get refinancing up to 80 percent of good loans as collateral for four months. The NRB is also preparing to further relax margin lending (loans against shares as collateral). Earlier, the High level Committee on Financial Sector Coordination Committee headed by the finance minister had decided to allow BFIs to decide whether to give loans beyond 60 percent of average price of shares put up as collateral. Currently, BFIs can sanction margin loans up to 60 percent of the average price of shares put up as collateral.
Source:the-kathmandu-post