NRB introduces new regulations for hire purchase schemes


November 28, 2023


NRB introduces new regulations for hire purchase schemes

Nepal Rastra Bank, Baluwatar/File Photo

KATHMANDU: Nepal Rastra Bank (NRB) has implemented amendments to the ‘Policy and Procedural Arrangements for Approving Hire Purchase Loan Companies, 2070.’

These changes are set to reshape the landscape for hire purchase entities, encompassing various aspects of their operations, it said.

One of the key revisions mandates that the name of any hire purchase loan company must now include the identifier “………. Hire Purchase Pvt. Ltd.” or “………. Hire Purchase.Ltd.”

The existing companies providing hire purchase loans are required to adjust their names accordingly and notify the NRB by the end of 2080 BS.

Additionally, a new prerequisite stipulates that the executive head or managing director of a hire purchase loan company must possess at least a bachelor’s degree.

Furthermore, when disbursing loans, companies are now obliged to obtain a permanent account number (PAN) from the borrower, with an exemption for loans of Rs. 25 lakhs or less.

In a bid to protect consumers, hire purchase loan companies are prohibited from imposing additional fees and charges, apart from interest, when extending loans.

The amendment also places a cap on the annual penal interest rate at 2 percentage points in the agreement with the borrower.

Furthermore, stringent accounting standards have been introduced, requiring hire purchase loan companies to maintain transparent records of capital, income, expenses, and other transactions.

Companies authorized to provide hire purchase loans must promptly submit transaction details to the relevant supervision department of Nepal Rastra Bank within 15 days after the end of each quarterly period.

An important stipulation addresses cases where installment payments exceed the due period by more than a year.

In such instances, the entire outstanding loan amount will be categorized as bad, necessitating a 100% loan loss provision.

Moreover, eligibility criteria for key positions within hire purchase companies have been enhanced.

Individuals with a criminal background, recent convictions related to embezzlement, corruption, dishonesty, fraud, inclusion in a blacklist within the last three years, or suspension from previous dealings with the bank face disqualification.

These changes, NRB said, has been made to reflect its commitment to fostering a secure and transparent environment within the hire purchase sector, ultimately safeguarding the interests of borrowers and promoting responsible financial practices.