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Posted On: 2017-08-17

Home and real estate loans: Loan-to-value ratio lowered in the Capital
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Those seeking home loan to build or purchase residential houses in the Kathmandu Valley will not get credit in excess of 50 percent of the fair market value of the property, says a directive issued by the Nepal Rastra Bank, the financial sector regulator, on Tuesday.

The loan-to-value ratio for credit sought to build or purchase residential houses outside of the Valley, however, has remained unchanged at 60 percent. Earlier, loan-to-value ratio for credit sought to build or purchase residential houses in the Valley also stood at 60 percent.

The NRB has raised the ceiling for home loan to Rs15 million from existing Rs10 million.

The NRB has defined home loan as credit extended by banks and financial institutions for purchase of a house or an apartment for residential purpose or to rent it out. Such credit should be extended on the basis of the income source of the borrower.

The NRB’s latest directive has also revised loan-to-value ratio for credit sought to purchase real estate in the Valley to 40 percent. The loan-to-value ratio for credit sought to purchase real estate outside of the Valley has remained unchanged at 50 percent.


The NRB has introduced a policy to discourage expansion of real estate and housing businesses in the Valley to enable the sector to grow in other parts of the country. These changes were made as per the announcement made through the latest Monetary Policy.

As per the provision included in the Monetary Policy, the NRB has also allowed banks and financial institutions to extend up to 65 percent of the value of vehicles as credit to auto loan seekers. This means those seeking bank finance to purchase vehicles can make a minimum down-payment equivalent to 35 percent of the value of the vehicle. Currently, that rate stands at 50 percent.

Those seeking loans to purchase electric vehicles, however, are allowed to make minimum down-payment of 20 percent of the value of the vehicle.

These slabs do not apply to those seeking bank finance to purchase 40-seat public vehicles, construction vehicles, vehicles to be operated by tourism sector, and educational and health institutions, and vehicles that will used to supply goods, says the NRB directive. The banking sector regulator has also said that banks and financial institutions from now onwards must fix the lending rate on credit to be extended on the back of fixed deposit at the time of accepting the fixed deposit from clients.


The banking sector regulator has also made it mandatory for commercial banks, development banks and finance companies to extend at least 25 percent, 15 percent and 10 percent of the total credit, respectively, to priority sectors within mid-July 2018.

Of these financial institutions, commercial banks must extend 10 percent of the total credit to agricultural sector, 5 percent to hydroelectric sector, another 5 percent to tourism sector and the remaining 5 percent to other priority sectors, such as export-oriented enterprises, small and medium enterprises, pharmaceutical companies, and cement and garment factories, says the NRB directive.

source: the kathmandu post, 17 august 2017

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