Retail lending has become a boon for consumers lately. Due to the insurgency and unstable investment climate, banks have also opted for the more secure forte, the retail lending.
The traditional belief that the needy only take loan from banks has seen a sea change in the last five years due to the changing life-style and growth in the number of urban middle class.
From a tiny household gadget to a car or a dream home, a consumer can get loans and go on paying easily in equated monthly installments (EMI).
Auto loan is one of the retail lending activities that is catching up among consumers and banks alike, recently. It is considered as a more secure investment and easy to recover, compared to other loans by banks and financial institutions.
The recent income boom, according to the Nepal Rastra Bank's salary index despite the decade long instability, has led to a steep rise in consumer loans, which have been a key factor in the growth of car sales.
"Apart from that, easy availability of auto loans has also fuelled auto sales," says Raveena Joshi, head, personal lending at the Nabil Bank Ltd, which provides 40 auto loans on an average per month.
Nabil's auto interest rates vary between seven to 9.5 per cent, depending upon whether it is for private use or commercial use, and sometimes depending upon the loan tenure also. "Each loan from Nabil Bank is ‘tailor-made’ for individual customer. We always ensure that we make the banking experience exciting and a joyous experience for each customer," she adds.
Though auto loan does not guarantee a large investment but considering the present situation, the banks’ approach towards auto loan is a good way to prevent liquidity from being inflated. Moreover, it does not increase non-performing assets (NPAs).
Depending upon the income source of an individual, banks finance up to 90 per cent of a vehicle’s cost. The remaining amount, along with the processing cost, is borne by the buyer.
The processing fee is normally one per cent of the total loan amount. EMI varies according to the loan tenure, the loan amount and the interest rate.
"Depending upon the income of customers, a vehicle loan is sanctioned and the bank does have a ceiling on the maximum amount that it can finance for a vehicle like it can finance only upto 90 per cent of the cost of the vehicle for private use for new vehicles only, and 80 per cent of the cost of the vehicle for commercial use for new vehicles only,” says Deependra B S Thapa of Standard Chartered Bank Ltd.
However, almost all financial institutions are offering competitive rates due to stiff competition in the retail-lending segment. It has provided consumers an opportunity to ride cars now and pay back loans over years.
"It has, to a certain extent, also allowed banks to reduce their liquidity problems with profitable avenues of investment," says Joshi, adding that retail financing is the demand of the day as lifestyle, basic needs and change in the attitude of people has opened new avenues. Banks have seen these opportunities in retail lending and ventured into this sector.
"Among retail loans, auto loan covers upto 25 per cent," says Rohit Chandra Shrestha of Branch Operation Department of Rastriya Banijya Bank (RBB), the government undertaking. RBB has started auto loan scheme after private commercial banks came into the market with various schemes related to auto loans. It offers seven per cent interest rate and claims that it has the most competitive rate in terms of processing charge in the market.
"Its processing charge is only 0.25 per cent, which is the cheapest among all the banks," claims Shrestha, adding that the bank has in the duration of two years provided loans to more than 200 units of vehicles.
Credit management plays a crucial role in keeping the bank safe from risks. For security, vehicles purchased under auto loans are registered in the Bank’s name, which itself works as a collateral.
Not only banks but also most automobile dealers happily make arrangements to provide loans to customers. Many banks have signed agreements with automobile dealers so that interest rate could be maintained at a lower level.
Auto dealers and banks float various schemes together in passenger vehicle category from time to time, which has resulted in a win-win situation for the dealer, bank and most importantly, for the customers.
Banks provide loans for second hand cars also. "Nabil has a panel of established, experienced and authorised valuators. We confirm the loan amount and tenure according to the valuation reports of the second hand vehicle from our authorised valuers," adds Joshi
"Life on EMI can be more luxuries and living a life on credit is no more a shame, but rather a status symbol," says one consumer, who owns a car and is paying for it in easy instalmets.