January 9: The decision of Nepal Rastra Bank to tighten the screws on individual loan has resulted in cancellation of bookings made for the purchase of vehicles.
Most of the people buy personal vehicles by taking loan from banks. However, flow of loan from banks for this purpose has almost ceased after the central bank demanded tax clearance certificate for providing loan for higher purchase. The decision taken on December 24 also states that BFIs can only provide 50 percent loan to the income of the individual.
This has had a direct impact on the automobile industry.
The central bank’s directive allows only those individuals who earn twice as much as the monthly installment for purchase of vehicles to benefit from the EMI facility.
The automobile industry had witnessed a slump in business ever since the central bank increased the minimum downpayment limit from 35 percent to 50 percent 14 months ago.
Stakeholders say their business and investment are at risk due to the latest decision of the central bank.
The central bank had initially decided to increase the minimum downpayment from 35 percent to 50 percent in early 2018. But due to pressure from the businessmen, the government backtracked from the decision while announcing the monetary policy for the fiscal year 2018/19. But in October 2018, the government implemented the decision once again.
Nepal Automobiles Dealers Association (NADA) has said that the irrational decision of the government has resulted in their business to shrink by 30 percent.
The central bank’s decision has caused cancellation of bookings, Karun Shakya, manager at Suzuki’s authorized distributor CG Motocorp.
The customers are in a “wait and see” mode, says Bivek Lekal, manager at Intercontinental Trading which deals with KIA motors.
Sipradi Tading’s Meghraj Dhungel says the central bank’s decision is certain to land the automobile industry in crisis in the near future.