Most FI’s though will not apply lowered rates on defaulters
With all banks slashing loan interest rates on a variety of products like housing, transport, personal, service, education, manufacturing, agriculture etc, the main question that has emerged is on what will happen to the existing clients and existing loans.
This question is particularly important as there was no direction from the Royal Monetary Authority (RMA) which left it to the discretion of the banks and Financial Institutions.
However, most people with existing and old loans with banks can heave a sigh of relief as all banks have decided to also apply the lower loan interest rates to existing and old clients.
This means for example that if you took a housing loan at 15 percent a few years ago and now if the new loan interest rate is 13 percent you can migrate your loan to the lower interest rate and thereby pay less in loan installments.
The new loan interest rates are effective mainly from 1st September for Bank of Bhutan, 15th September for Tashi Bank (T-Bank) and 1st October for most other financial institutions like Bhutan National (BNB), Bhutan Development Bank (BDB), Royal Insurance Corporation of Bhutan (RICB), and National Pension and Provident Fund (NPPF). Druk PNB and Bhutan Insurance Limited are in the process of finalizing the reduced interest rates and will be submitting it soon to the RMA.
Except for the Bhutan National Bank (BNB) which will the lower rates uniformly for all existing and old clients irrespective of their Non Performing Loan (NPL) status, all other Financial Institutions will not extend the same facility to defaulters or NPL loans.
A NPL loan is where the customer has defaulted on interest payment to the bank for more than 91 days from the due date of payment.
The BNB MD Kipchu Tshering said that all the applicable loan products would be slashed down to the new rate for old and existing clients.
“If we don’t give lowered rates for existing clients then there will be a movement and some people will say it is not fair. In fact why should we treat our existing and old clients differently. We all apply the same lowered rates so that it is fair,” said the BNB MD.
In the case of BoB the clients have to approach the bank and get a form that will allow the bank to migrate clients from their old interest rates to the new ones.
Bank of Bhutan (BoB) CEO Pema Nadik said, “Old clients can opt for the new rates by submitting a formal application. The formal application is necessary as we have to have the consent of the client to change the interest rates and also enable us complete the new documentation formalities.”
Unlike BNB the lowered loan interest rates for BoB will not be on offer to those with NPL issues.
The BoB CEO said, “In order to migrate to the new interest rates, an account should not have been classified as a Non Performing Account (NPA) or overdue for over 91 days in the last 2 years.”
The Druk-PNB CEO Mukesh Dave said that while the board will finalize the lowered interest rates soon the Druk-PNB will also extend lowered interest rates to only clients without NPL irregularities.
Mukesh Dave said, “The RMA leaving the applicability to the banks is a good thing as this can be a tool to incentivize the good loan behavior of clients.
The NPPF CEO Dungtu Drukpa while confirming that the lowered interest rates would be applicable to existing and old clients said that NPL accounts would not get the same benefits until they settle their dues.