Whats cooking on the home loan front

Home loan seekers are suffer ing from the rise in interest rates on loans.According to bankers, the reason behind increasing the interest rate on loans is as per the guidelines issued by the Nepal Rastra Bank (NRB) to not increase the gap between the interest rates on different saving schemes over two per cent.While the increase rate on deposits attracts depositors, those applying for loans are suffering badly. According to deputy governor, Gopal Kafle, "To discourage capital flight, higher interest rate was necessary." He further adds NRB will regularly check the interest rate of the Indian banks as well.

The real estate, which was once booming, is now facing major setbacks due to the new bank policies, including higher interest rates on loans. "The increase in interest rate time and again has changed our lifestyle and we are forced to cut our other expenses," says Sabita Joshi, who has taken a housing loan, adding that they had planned their budget according to the previous interest rate, but had to rearrange their plans once the interest rates went up. She shares her grievance, "In addition to it, our salary has not increased in ratio to the inflation in every sector."

Another customer, Firoj Shakya Shrestha, echoes a similar concern. According to her, though they had a prior agreement with the bank that they would pay up every time the bank increased the interest rate, they are still not adequately prepared for it. The sudden increase in interest rate time and again, with scant warning, has created problems.

Shrestha feels that the process of loans being approved by banks is time-consuming, sometimes taking up to six months. She added that the frequent changes in rules and regulations make it difficult for clients to understand the process.

Commercial banks are also aware of the problems facing the customers, but are helpless to do anything about it. "We just follow the directives of the NRB.Although such regular circulars and regulation are justified, its long term impact is still vague," says Surender Bhandari, chief executive officer of Siddhartha Bank.He adds, "One cannot say whether the rise on the interest rate in savings account will limit the interest rate on loans. This policy is yet to be implemented and we can comment about the probability of decrease in interest rate on loans only after that."

"It is obvious that with the increase in interest rate, customers are facing problems. We also realise this. We are trying to do our best to cope with it by increasing the time period for them to clear their instalments. To take an example, if a customer has to repay a loan within 10 years, we may increase the time span by two years," says Bhandari.

Housing companies are also affected by this problem, for they need to revise their loan policies in tandem with NRB. Prakash Bajracharya, director of Shangri-La Housing Pvt Ltd says, "NRB should not revise rules and regulations time and again as we developers and the customers face problems. NRB should instead concentrate on strengthening policies." He adds that it is not necessary to change the policies as soon as there is a change in the governor.

He is also concerned about the period of approving loans by banks."Due to the delay in our loans being approved, we are facing cancellations of already booked apartments," says Bajracharya, adding that they feel `something is cooking' in the banks policies regarding house loans.

source: Himalayan News Service(2011)."What's cooking on the home loan front?", The Himalayan Times: Property Plus, Jan 8 2011

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