KATHMANDU, Dec 25: Bank and financial institutions (BFIs) must now factor in regular income of borrowers while floating personal-type loans, housing loans and hire purchase loans.

Issuing a circular to BFIs on Tuesday, Nepal Rastra Bank (NRB) fixed the debt service to gross income ratio for individual borrowers for personal loans, housing loans and hire purchase loans. The central bank has fixed 50% of debt service to gross income ratio for such loans.

According to the new rule introduced by the central bank, a bank or financial institution will have to float loan amount within a limit that does not exceed the borrower's 50% of gross income for non-commercial loans like personal loans, hire purchase financing and home loans.

Though BFIs also consider the income source of their borrowers to ascertain repayment capacity while processing loan applications, the value and quality of collateral has been the major factor that forms the basis of loan disbursement decision.

This new rule will stop banking institution to float loans whose repayment installment amount is higher than the borrower's 50% gross income. 

Now, the borrowers who want to buy home or car from loans must have to present their certificate of income along with tax clearance certificate to the BFIs. This means if a borrower has a gross salary of Rs 50,000 per month, s/he will not be able to get home loan with monthly installment of more than Rs 25,000 per month irrespective of the value of the collateral.

“Banks have their own norms while considering the regular income for such loans. Now, the decision to fix the maximum ratio will restrict them to float loans whose installment does not cross the limit,” said Bhuvan Dahal, president-elect of Nepal Bankers Association (NBA). 

If any bank floats loans higher than the ratio, it must classify such loan as loans under 'watch list'. This means that the bank must provision 5% of such loan as losses.

According to the NRB data, BFIs have floated Rs248.4 billion residential personal home loans (up to Rs 15 million each) and Rs 182.94 billion hire purchase loans as of mid-November.  

Meanwhile, the NRB has decided to allow loans for setting up charging station to be counted as loans under hydropower and energy sector for priority sector lending. Earlier, it was not included in the priority sector. The NRB requires commercial banks to float at least 25% of their total loans in priority sectors including 15% in agriculture sector. Such priority sector lending requirement for development banks and finance companies is 15% and 10%, respectively.

 
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