In a bid to ease availability of home loans, Nepal Rastra Bank is soon permitting banks and financial institutions (BFIs) to exclude home loans up to Rs 5 million from real estate loans.

However, if home loans crossed over Rs 5 million, it would be counted as real estate loans, a category in which the central bank has imposed a cap, tagging it as speculative investment.


Earlier, the central bank had planned to exclude portfolio of home loans as a whole from real estate loans. “However, we revised our position lest real estate developers might use this channel to funnel their projects,” said a source.

This means the central bank doubts high amount of single credit issued under home loans might have been siphoned off to serve purpose of real estate loans in the past.

By excluding ´genuine´ level of real estate loans from real estate cap, the central bank believes it will free general public from the problem they are facing in getting housing loans.

“It will also ease BFIs to comply with the cap imposed on realty loans exposure,” said the source.

Amid soaring asset bubble, the central bank had more than a year ago imposed a cap on realty loans, seeking BFIs to limit their loans in the real estate and housing. Going by this directive, BFIs will need to bring down their realty loans to 25 percent or less of their total lending portfolio.

The policy was enforced to cool the overheated realty market. It, however, had led the market to stagnation, mainly hurting housing industry. Besides, as the BFI´s exposure in the sector was already too high, public were facing problems to get loans with ease.“The new relaxation once into place will instantly exclude well over Rs 30 billion worth of home loans from the real estate loans. This will ease BFIs and also enable them to issue more credit, ultimately relieving borrowers and housing industry as well,” said the source.

The central bank is offering fresh relaxation on home loans as per the announcement it made in the mid-term review of Monetary Policy for the current fiscal year. During the announcement, the central bank had made it clear that it would continue to tighten loans going into real estate business, particularly land trading, as those are speculative in nature and could hurt BFIs financial health.

“However, we will soon take steps whereby BFIs will be able to issue home loans up to certain specified amount without any restrictions,” Governor of NRB Dr Yuva Raj Khatiwada had told the press a couple of weeks ago.

source:republica(2011),"Home loans up to Rs 5m may be excluded from realty loans ", republica, 15 March 2011