KATHMANDU, May 27: Nepal Rastra Bank (NRB) has issued a directive on the procedure for refinance of loans floated by banks and financial institutions (BFIs) to earthquake-hit people for rebuilding their homes.
Issuing a circular to licensed 'A', 'B' and 'C' class BFIs on Wednesday, the central bank has outlined the process, conditions and provisions for BFIs for the 0 percent refinance of loans issued to earthquake-hit people who have become homeless due to the earthquake.
Earlier the central regulatory bank had announced that it will offer relief to the earthquake-hit people by refinancing loans of the BFIs issued to homeless people at 2 percent interest rate
NRB had floated the draft procedure last week in a bid to get feedbacks from the concerned stakeholders in regard to refinancing of such loans. While NRB has retained most of the provisions laid out in the draft procedures, it has made some changes in the draft.
According to the procedure, the limit for loan refinancing will be Rs 2.5 million in Kathmandu Valley and Rs 1.5 million in districts outside Kathmandu Valley.
NRB has introduced a grace period of one year to the borrowers. This means that the borrowers will have to pay back the first installment of principal and interest only after a year.
Following complaints from the bankers about the prohibition to extract service charges, the new procedure has paved the ways for the BFIs to charge various cost like insurance, collateral valuation, loan information and credit guarantee fee, to be paid to third party in this type of loans. However, BFIs will not be allowed to levy any service charges for themselves. The NRB has restricted BFIs from making any change in interest rates of such loans.
The maturity period for borrowers, who are borrowing again after their homes are destroyed by the quake, will be 15 years while other borrowers will have the maturity period of five to 10 years, according to NRB Spokesperson Min Bahadur Shrestha. "Since the borrowers, who had already taken loans to build homes, are required to pay installment of principal and interest rates of their earlier loans also, the relaxation in maturity period will provide additional relief to them," he added.
Similarly, NRB has also shown flexibility in loan loss provisioning requirement for BFIs.