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Friday, June 14, 2019

NRB to tighten loans on vehicle import

Kathmandu, June 14

Nepal Rastra Bank will soon tighten disbursement of loans to vehicle importers in a move to curb the rising import of vehicles in the country.

Based on the spirit of the national work plan endorsed by the Cabinet recently to address the ballooning trade deficit, the central bank is preparing to prevent banks and financial institutions from issuing trust receipt loans to importers of automobiles and spare parts through the Monetary Policy for fiscal 2019-20.

Trust receipt refers to a type of short-term import loan to provide the buyer with financing for goods imported under Letter of Credit. However, under this type of loan, even though the bank retains the title to the goods, it allows the buyer to take possession of the goods on trust for resale before paying back the bank on TR due date.

The work plan endorsed by the Cabinet states that necessary provisions will be introduced by December to stop TR loans for importers of vehicles and spare parts other than electric vehicles.

NRB states that it is obliged to comply with the decision of the government and will address the provision regarding stopping TR loans for vehicle and spare parts importers through some means in the upcoming Monetary Policy.

If NRB does go ahead with this plan, vehicle importers will face monetary problems as they will have to themselves make the entire payment for vehicles they import. As of now, vehicle importers take 90 per cent of the value of a vehicle as TR loan from domestic banks and financial institutions at a certain interest rate. Such short-term loan normally has a maturity period of 90 days.

Automobile importers have said that the plan to stop TR loans for import of vehicles and accessories is an ‘undesired’ plan of the government, which will do nothing but stop capital flow worth billions of rupees in the market and ultimately shrink the economy.

“The private sector has injected investment worth billions in the automobile sector and a majority of vehicles, especially four-wheelers and other large vehicles, are being imported on the basis of TR loans. Thus, plan to bar TR loans for vehicle importers will put all our investment at risk,” said Shambu Prasad Dahal, president of Nepal Automobile Dealers Association.

As per NRB’s statistics, BFIs had issued TR loans worth Rs 14.9 billion till mid-April this fiscal, while total TR loans issued during the same period in fiscal 2017-18 stood at Rs 45.7 billion.

However, NRB officials said the government’s plan primarily intended to address the problem of under-utilisation of commercial vehicles such as buses, trucks and excavators, due to which investment worth billions was frozen and that had not contributed to the economy.

“A majority of commercial vehicles such as those mentioned above have to wait for their shifts for days and remain unutilised. Tightening the TR loan intends to primarily discourage import of such vehicles though it might also affect the import of cars and other private vehicles,” said Laxmi Prapanna Niraula, spokesperson for NRB, adding that the central bank would have to tighten TR loan on import of vehicles and accessories as it was the decision of the government.

 

The post NRB to tighten loans on vehicle import appeared first on The Himalayan Times.



from Business – The Himalayan Times http://bit.ly/31yzFhz

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