Nepal Rastra Bank on Tuesday announced that it will soon relax its policy on realty loans, separating home loans from real estate lending, in a bid to give a new lease of life to the troubled housing industry.

However, it made clear it will continue to tighten loans going into real estate business, particularly land trading.

“We will soon take steps whereby banks and financial institutions will be able to issue home loans up to a certain specified amount without any restrictions,” said NRB Governor Dr Yuva Raj Khatiwada.

Khatiwada did not explicitly spell out what that ´specified loans amount´ will be.

Deputy Governor Maha Prasad Adhikari too elaborated that the central bank was planning to exclude home loans issued on the basis of personal income from the broader category of ´real estate loans´.

“We believe this exclusion will enable banks and financial institutions (BFIs) to issue home loans with relative ease, as they will not worry about the cap the central bank has imposed on real estate loans,” he stated.

The central bank had last year imposed a cap on realty loans, to force BFIs into limiting their loans in the sector at 25 percent or less of their total lending portfolio. While the policy was enforced to cool overheated realty market, it had led the market to stagnation, mainly hurting the housing industry.

During the mid-term evaluation of monetary policy, Dr Khatiwada on Tuesday also promised to loosen its directives on margin lending in a bid to support share market regain confidence.

He also promised to relax provisions on refinancing, so that more BFIs could avail of the facility, supporting increased credit flow to productive sectors like tourism, hydropower, small and medium enterprises and agriculture.

Dr Khatiwada also said that the central will issue more repo, through which BFIs can acquire loans against securities they hold, to address the current liquidity crunch.

“Compared to a few months ago, liquidity in the banking system has now eased. Nonetheless, we will use all possible instruments to bring the situation back to normal,” said he.

Bankers welcomed the changes Governor Khatiwada promised.

“We had long sought the central bank to treat home loans as different from speculative real estate loans and relax provisions on margin lending. We welcome the relaxation the governor promised during the review of monetary policy,” said Ashok Rana, president of Nepal Bankers´ Association.

source:Republica(2011),"NRB to ease home loans ", republica, 4 March 2011