Government tweaks loan norms

- SANJEEV GIRI, Kathmandu

Oct 9, 2018-

The government has adopted a pragmatic approach by altering the modality of providing concessional loans to survivors of the earthquake that struck Nepal on April 25, 2015.

As per the recently introduced Integrated Working Procedure for Subsidised Credit 2018, earthquake victims were unable to start reconstruction of their houses due to unavailability of adequate funds can seek for concessional loans up to Rs300,000. The Cabinet has ratified the decision that grants a payback term of five years.

In line with the procedure, the government will cover five percent interest rate provided to the earthquake survivors by the banks and financial institutions (BFIs). The financial institutions have been allowed to scale up profits up to two-percent on their base rate.

National Reconstruction Authority (NRA) Chief Executive Officer Sushil Gyewali told the Post, “This is a more pragmatic approach and a major policy departure on disbursing loans to people impacted by the earthquake.

“The financial obligation for earthquake survivors might be a bit higher, but again, this move has been taken to ensure that the loan is sanctioned.”

The base rates of most financial institutions hover around 10 percent, and a premium of two-percent increases the rate to 12 percent. This makes the cost of borrowing loan rather high for people.

Defending the decision, the NRA chief said, “The scheme is as per the recommendations and suggestions of earthquake-impacted people as well as local authorities. It is beneficial for them to have a provision that ensures availability of quoted amount rather than a sugar-coated provision that remains inaccessible.”

The NRA head-honcho added that some commercial banks offer loans at an interest rate around seven-percent. People are free to choose any bank that serves their interests.    

The fact that only around 1,300 people have availed concessional loans highlights the issues with previous policy, Gyewali said.

According to the government’s earlier provision, banks and financial institutions (BFIs) would obtain loans from the central bank at zero percent interest rate and issue loans to the quake survivors at an interest rate of two-percent.

Quake-damaged house owners in Kathmandu Valley were entitled a maximum loan of Rs2.5 million. Those outside the Valley could receive up to Rs1.5 million.

As per the records of the central bank and BFIs had disbursed Rs1.77 billion in housing loans to quake victims at the concessional interest rate of two percent as of mid-June 2018. The government and the central bank differed over the issue of concessional loans as the latter feared disbursing funds would pose a serious risk to financial institutions and hence review the decision as soon as possible.

The provision will discontinue starting mid-October serving those who had submitted applications for loan within the time limit.

The NRA discussed the recently introduced modality at its headquarters in Singha Durbar on Monday. Officiating Governor of Nepal Rastra Bank Chintamani Shiwakoti, Joint-Secretary at Finance Ministry Uttar Khatri, Nepal Bankers’ Association President Gyanendra Prasad Dhungana among other representatives from institutions representing B and C Class financial institutions attended the meeting.

“We urged financial institutions to sanction loans to borrowers by keeping their land or under construction house as collateral. The people are positive about this,” said Gyewali.

“We also dwelled on the idea of group guarantee as stated in the procedure, but representatives from the central bank as well as financial institution did not seem to be enthusiastic about it.”

During the meeting, stakeholders also discussed the tendency of BFIs not sanctioning loans even after recommendations from government agencies.

The meeting concluded that the central bank would keep records of such loan requests to ensure quake victims receive financial support without much hassles.

“So far, such records used to be tracked only by the NRA. With the regulatory body joining hands, the process would now be efficient,” Gyewali said.  

According to the NRA Under Secretary Manohar Ghimire, apart from people who have not started rebuilding their homes due to financial issues, those who have failed to avail the second tranche of government support following their inability to meet compliance norms to obtain it would be eligible for the concessional loan.

“Such people, however, need to mandatorily obtain recommendations from the relevant authorities at the local level,” Ghimire said.

Reconstruction of private homes that are the government’s top priority have failed to progress due to several issues including easy availability of funds and inefficient bureaucratic processes, even though the authority has said that 305,883 homes have been reconstructed so far while 251,527 homes are being rebuilt currently. 726,917 households hold grant agreements with the NRA as of Monday. 

Published: 09-10-2018 07:23

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