KATHMANDU, June 29: Bankers have urged the central bank to raise the upper limit of personal housing loans from Rs 10 million to at least Rs 20 million.
The demand from banking executives for upward revision of personal housing loans has come in the wake of rising costs to purchase land and build a house.
As the ceiling for personal housing loans has been fixed at Rs 10 million per borrower, bank and financial institution (BFIs) extending loans higher than the limit have to count the exceeding amount into another loan category like commercial complex loan.
“The central bank has not revised the upper limit of personal home loans for last two-three years. Since the house construction cost as well as land price has gone up significantly in recent years, such limit should be raised to at least Rs 20 million through the upcoming monetary policy,” Gyanendra Dhungana, the vice president of Nepal Bankers Association (NBA), told Republica.
Bankers are pushing for upward revision in ceiling as demand for such loans are rising in terms of both demands and size of the loan amount.
Banks are required to put less risk weight on personal home loans while such risk weight requirement is higher in other category. This implies that lenders are required to set aside less capital in personal home loans while higher capital has to be allocated if housing loan is sanctioned through other category like overdraft, commercial or real estate loans.
Consumer financing, which includes retail loans like personal home loans, auto loan and credit cards, has become a relatively stable and lucrative business for BFIs in recent years. Consumer type loans that include personal home loans account for at least 15 percent of the total loan portfolio of most of the BFIs, indicating that loans under this segment has become a major source of earning for the BFIs.
Even government-owned banks are now increasing their loans toward this sector in recent years. They have also suggested to the central bank to increase the upper limit.
“Land price has gone up in recent years so has the price of construction materials. Price of 4 ana of land in Kathmandu, which was around Rs 5 million three-four years ago, has climbed up to nearly Rs 10 million. So, the upper limit should be increased in line with the market price,” Bhupendra Panday, deputy CEO of state-owned Rastriya Banijya Bank Ltd, said.
The increase in upper limit will also benefit consumers, say bankers. The cost for borrowers will increase if loan category is changed as banks charge lesser rate on personal home loans compared to interest rates on other category. “Since the risk weightage is low in personal home loan, interest rate is also relatively cheaper. However, it can go up if such loan is classified into another category where the risk weightage is high,” added Panday.
Meanwhile, NRB officials have said that they were weighing on the merit of the demand of the bankers.