The draft guidelines have been put up on the RMA website for public feedback
In what will be welcome news for those eagerly waiting to build or buy their homes the RMA has floated some draft guidelines on its website that allow Financial Institutions (FIs) to give housing loans with certain conditions.
There are also draft guidelines for mopening up car loans and consumer loans.
The RMA has floated these guidelines so that members of the public can give their feedback through email.
The RMA’s measures are in line with its own monetary policy that various loans could be opened up once fiscal measures like taxation are passed by the government.
The government was also keen to open up housing loans with specific conditions attached.
The draft guideline has divided housing loans into commercial housing loans (CHL) for making income and profit and home loans (HL) for residential purposes.
Commercial Housing Loans (CHL) According to the draft commercial housing loans (CHL) shall have a maximum loan limit of Nu 20 million with a maximum loan period of 20 years.
The loan amount can vary from dzongkhag to dzongkhag depending on the population size, economic activity and other criterias of theFinancial Institution (FI).
“CHL will be provided only for the construction, repair, purchase of a house, building or apartment strictly for the purpose of generating a profit, either for a business activity, resale of property or from rental or lease income,” says the draft guideline.
CHL shall be provided only by one FI and multiple raising of loans on the same collateral is not permitted.
Loans for repairs shall be permitted only after the first 10 years of occupancy or 10 years from the last period of repair and the maximum loan limit for repairs is Nu 10 mn. CHL loans cannot be clubbed with home loans.
The ‘Loan to Value Ratio’ of CHL will also depend on the amount of loan being taken. It is 70% for loans under Nu 5 mn, 60% for loans above Nu 5 mn but upto Nu 10 mn, and 50% for loans upto Nu 20 mn. This would decrease by 10 percent each if the asset being bought is second hand like buying a second hand apartment.
Loan to Value basically means that if the value of an asset one is planning to buy like for e.g. a toy is Nu 100 then the loan to value ratio would determine how much percenatge of the Nu 100 one could get as a loan from the bank. This could be from 50% which is a Nu 50 loan to 70% which is a Nu 70 as loan on the total value of Nu 100.
Another example would be if one is planning to buy a house worth Nu 1 mn then if the banks Loan to Value is 50 percent one would only get Nu 500,000 as a loan. Loan to Value is a protection for the bank to limit its risk incase the person taking the loan defaults.
The debt equity ratio of the loan irrespective of the loan size shall be 60:40 meaning that the borrower shall inject 40% of the project cost as equity contribution. This equity payment shall not be a
borrowed fund from a FI.
For e.g. of a project’s total cost is Nu 1 mn then as per this debt equity ratio, Nu 600,000 will be the loan given by the bank while Nu 400,000 will have to be the money pumped in cash by the person building the project.
Disbursement of the loan will only start once the borrower has deposited his equity portion of the total amount in cash with the FI.
In terms of the repayment capacity or ‘Loan to Income’ ratio 90 percent of the monthly income from the commercial property should be enough to cover the monthly loan installments. This means that if one has a monthly rental income of Nu 10,000 then ones loan installment should not be more than Nu 9,000 per month which is 90 percent of the rental income.
Home Loans (HL)
The maximum limit for Home Loans (HL) is Nu 3 mn. Homeowners can take Nu 600,000 as loans for repairs but only 10 years after occupancy.
Only one member (borrower) of a family shall be eligible for a home loan once in his or her lifetime. For the purpose of this regulation, family is defined as a person, his spouse and dependent children.
“ Home Loan shall be provided only for construction,repair, purchase of a house or apartment for one unit personal dwelling,” says the draft guideline.
The Loan to value Ratio for HL is 80% for upto Nu 1 mn, 70% for Nu 1 mn plus but below Nu 2 mn, and 60% for upto Nu 3 mn. This would be reduced 10 percent in each category if the asset being purchased is second hand. Loan to Value Ratio is 50% for the Nu 600,000 repair loan.
The loan amount can vary from dzongkhag to dzongkhag depending on the population size, economic activity and other criterias of the financial institution.
The debt equity ratio of the loan irrespective of the loan size shall be 70:30 meaning the Borrower shall inject 30% of the project cost as his equity contribution.This equity payment shall be made from his personal resources and shall not be a borrowed fund from a FI.
Disbursement of the loan will only start once the borrower has deposited his equity portion of the total amount in cash with the FI. Loan shall be disbursed in tranches depending on the status of the construction/ transaction progress.
In terms of the repayment capacity or loan to income ratio 50 percent of the gross monthly income of the perosn taking the loan should be enough to cover the monthly loan installments. This means that if one has a monthly loan installment of Nu 5,000 then ones gross income should atleast be 10,000.
The term of the loan shall be a maximum period of 5 years and there is no limit set on the amount. Multiple raising of vehicle loan on the same collateral is prohibited.
The Loan To Value ratio for vehicle loans is 60% for loans up to Nu 800,000 and 50% for loans above Nu 800,000. In the case of buying second hand vehicles the LTV ratio drops down to 40 percent.
Loan to Value basically means that if the value of an asset one is planning to buy like for e.g. a toy is Nu 100 then the loan to value ratio would determine how much percenatge of the Nu 100 one could get as a loan from the bank. This could be from 50% which is Nu 50 to 70% which is Nu 70 as loan of the total value of Nu 100.
In case of Loan to Income ration or repayment, for those having a disposable income of up to Nu 50,000 their monthly installment should not be more than 50% of their income, for those with disposable income of above Nu 50,000 and below 100,000 their installment should not be more than 60% of their income. For those with disposable income above 100,000 their installments can be up to 70% of their salary.
Consumer Loans (CL)
Consumer Loans (CL) are proposed to have a maximum loan limit of Nu.500,000 with a maximum loan term of 5 years. CL shall be provided only for personal consumption purposes which shall be defined by the FIs and approved by the FI Board.
CL shall be available to a person only upon full liquidiation of the previous loan if any. CL shall not be provided in the form of overdraft facility to an individual.
CL loan cannot be used for purchase of immovable property like land, building etc. Collateral will be required in the case of non-salaried people availing CL.
50 percent of the gross monthly income of the perosn taking the loan should be enough to cover the monthly loan installments.
Internal Risk Management and safety precautions
As per the draft guidelines FIs shall ensure complete and strict compliance to all the requirements of these guidelines in approving loans which shall be the responsibility of the Board
and the management through effective and efficient controls in place.
All FIs board shall put in place an appropriate credit risk management policy to ensure proper implementation of these regulations.
All FIs shall report to RMA in line with the offsite reporting framework which shall be supplemented by onsite inspections.
In case of any non-compliance to the requirements of these regulations, a fine of Nu.3,000 to 5,000 per day shall be levied to the non-complaint FI until such time the act is rectified.
The FI must ensure that the information given by the borrower is correct. The RMA shall prescribe various steps to be followed by the FI, including the self-declaration by the borrower or verification by the FI or both.
Loan clearance certificate and collateral report from central registry shall be procured by FI prior to the approval of loan. This report should be supplemented by additional enquiries to be made by the FIs to ensure accuracy on the borrower’s credit history and the collateral to be mortgaged. FIs and the borrowers, through a legal undertaking, shall ensure the proposed collateral is free of any debt obligations.