Real Estate loan went down in the third quarter of the current fiscal year as compared to the second, thanks to the banks tightening the screw on such loans amid Nepal Rastra Bank (NRB)'s directive to right-size them.

Liquidity problem in the banking system in the past seven months is another factor that has contributed to the lesser lending in the realty sector, according to bankers.

The loan figures came down to Rs. 63.64 billion in the third quarter from 65.72 billion in the second this year. With the liquidity crisis still on, most banks have stopped issuing fresh loans in this sector.

Even those who have already started real estate projects are complaining that they have been compelled to pay heavy interest rates for new loan installments.

President of Nepal Bankers' Association Sashin Joshi said the real estate lending witnessed a fall as a result of the liquidity crisis, while banks with high credit and deposit ratio are also required to cut their lending to the realty sector.

"I believe the banks have virtually stopped new lending to the realty sector although the liquidity situation has improved to some extent in recent days," Joshi said.

The strict NRB policy to discourage real estate lending is also responsible for the decline in the real state loans.

Banks and financial institutions are required to reduce their real estate lending to 25 percent of the total lending and to 40 percent in both the real estate and housing credits by the end of the current fiscal as per an NRB directive issued last December.

The NRB took the measure to curb unrestricted lending, especially in the realty sector, fearing the pernicious impact of such lending for the health of banks and financial institutions.

A total of 16 banks out of the 26 saw their lending to the real estate sector go down, while the rest saw a slight increase. Among the banks witnessing decline are Nepal Bank Limited, Nepal Investment Bank Limited, Standard Charted Bank, NIC Bank, Machhapuchhre Bank, Kumari Bank, Laxmi Bank, Siddhartha and Global Bank. Citizens, Prime, Sunrise, Bank of Asia, DCBL, NMB and KIST have also cut down on loans in the sector.

Due to restriction in the realty lending, transaction in the sector has also come down heavily. The sector witnessed a 25 percent decline in the transactions during the first 10 months of the current fiscal in the capital. All five land revenue offices in the capital received Rs. 2.66 billion as land revenue in 10 months against the Rs. 353 billion during the same period last year, according to the Department of Land Reforms and Management. 

Courtesy: The Kathmandu Post