"Banks to extend credit to quake-hit at annual interest rate of two pc"

Nepal Rastra Bank today formally introduced a guideline on concessional home loan for earthquake victims, paving the way for those whose houses have become uninhabitable to acquire credit at annual interest rate of two per cent.

The guideline, however, was introduced at a time when the government has suspended approval of building designs, without which new houses cannot be built.

This means quake victims whose houses were completely destroyed or were damaged cannot use the credit facility till the end of this fiscal year.

“We know borrowers may not be able to fetch the loans immediately, but I think the government would introduce some measure to allow those who have lost homes due to the earthquake to build new houses,” said Head of Research Department at NRB Min Bahadur Shrestha. Last week, the Ministry of Federal Affairs and Local Development, after consulting the Ministry of Urban Development, stopped approving designs of new buildings and barred individuals whose building designs were approved prior to the quake from erecting houses more than two storeys, including ground floor.

Today, MoUD Spokesperson Padma Kumar Mainalee said there would be no change in the provision introduced last week. “The moratorium on design approval and construction will continue till mid-July as said earlier,” he added.

But once the moratorium is lifted individuals can apply for soft loan at any commercial bank, development bank or finance company, upon furnishing evidence that the borrower does not own any house, other than the one that has become uninhabitable.

The ceiling on such loans has been fixed at Rs 2.5 million for quake victims of the Kathmandu Valley and Rs 1.5 million for victims residing outside the Valley, states NRB guideline. The loan has to be paid back in five to ten years. But victims, who are servicing home loans, can get credit facility for up to 15 years.

The earthquake of April 25 and subsequent aftershocks have fully destroyed 500,717 private houses and caused damage to 269,190 additional private houses throughout the country. In the Kathmandu Valley, 72,399 houses were totally destroyed and 65,694 suffered damage. If only 25 per cent of house owners of the Valley, whose houses were totally destroyed by the quake, apply for the concessional loan, banking institutions will initially have to fork out Rs 45.25 billion. And if only 10 per cent of house owners outside the Valley, whose houses were totally damaged, seek loans, banking institutions will have to arrange credit of another Rs 64.25 billion.

Although this seems quite a huge sum, banks and financial institutions are unlikely to face problems arranging funds, as NRB has agreed to avail refinancing facility at zero per cent interest rate.

This means banks and financial institutions can claim refund from NRB soon after issuing loans to borrowers.

“The loans acquired by banking institutions, under the refinancing facility, will have to be paid back after a year and can be renewed immediately,” said Shrestha.

source: the himalayan times, 28 may 2015