KATHMANDU: Nepal Rastra Bank (NRB) has tightened the loan-to-value (LTV) ratio for vehicle financing by hire purchase companies.
As per the revised policy, introduced through the fifth amendment to the Policy and Procedural Framework for Licensing Hire-Purchase Credit Companies, 2013, hire-purchase companies can now finance only up to 60% of a vehicle’s value. This has lowered the LTV ratio for EVs by 20 percentage points and raised it for combustion vehicles by 10 percentage points.
Earlier, such companies could lend up to 80% of the vehicle cost.
“When disbursing loans, companies must ensure that the loan does not exceed 80% of the collateral’s value,” the circular reads. “However, for vehicle purchases, the loan-to-value ratio must be limited to a maximum of 60 percent, based on the type of vehicle as outlined.”
According to the central bank, the new policy change will apply to all electric vehicles and other private vehicles for personal use.
EV Financing Tightened
Sameer Thakur, CEO of Hulas FinServ Hire Purchase Pvt Ltd, said the change has little impact on his company. “We do not invest in the EV segment due to perceived risks, so the 60 percent cap doesn’t affect us much,” he told Mero Auto.
As many as 10 hire purchase companies are currently operating in Nepal.
Shambhu Subedi, CEO of Manokamana Hire Purchase Pvt Ltd, said the new policy will significantly affect those with major EV investments.
“Since our focus is on agricultural tools, commercial vehicles, and construction equipment, it won’t impact us much. However, it will affect companies involved in EV financing,” he added.
Subedi also pointed to other regulatory pressures, such as restrictions on service fees and the requirement to operate within a 4% interest spread.
Stakeholders argue that the stricter regulations will drive customers to rely more on banks for vehicle loans. Previously, hire purchase companies served borrowers who couldn’t access bank financing.
“The interest rates offered by banks are already lower than ours,” said the CEO of another hire purchase company. “The 60% loan limit further squeezes our business opportunities.”
Two-Wheeler Financing Stable
Despite these challenges, the two-wheeler segment is expected to remain stable, as banks generally do not finance such purchases.
This means customers seeking installment plans for two-wheelers will continue relying on hire purchase companies.
Although exact figures are not available, hire purchase companies in Nepal are estimated to have a combined portfolio of around Rs 30 billion, with paid-up capital exceeding Rs 3 billion.
As of mid-February of the current fiscal year, banks and financial institutions have invested Rs 130 billion in hire purchase, including Rs 87.65 billion in commercial vehicles and Rs 42.30 billion in passenger vehicles.
While the NRB’s revised policy aims to strengthen oversight of the hire purchase industry, it also raises concerns about the long-term viability of EV investments and the overall sustainability of these companies in Nepal.
