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The liquidity crisis in the banking sector, the slowdown in the realty sector, and the central bank tightening of the realty loan have suppressed the banks and financial institutions (BFIs) loan disbursement growth to the realty sector in the last fiscal year. The real estate industry sought fewer loans from the banking sector in the last fiscal year as they grappled with multiple issues.

The recent data of the Nepal Rastra Bank (NRB) shows growth in overall realty lending of BFIs stood at 5.56 percent in FY 2022/23 compared to 17.46 percent growth in FY 2021/22. BFIs' loans to the realty sector grew by Rs 31.50 billion in FY 2022/23 whereas such lending in FY 2021/22 increased by Rs 84.17 billion.

According to NRB, the residential personal home loan grew by 3.1 percent in the last fiscal year. BFIs give loans up to Rs 15 million under the residential personal home loan. Such loans from the BFIs increased by Rs 10.32 billion in FY 2022/23, according to the NRB. The personal home loan segment had grown by 13.3 percent in FY 2021/22 as BFIs extended Rs 39.53 billion under this category.

The real estate loan, according to NRB, surged by 9 percent in the last fiscal year. The BFIs lending under this category increased by Rs 21.18 billion in FY 2022/23. Such lending in FY 2021/22 had grown by 24.3 percent or by Rs 44.63 billion. Under the real estate loan category, lending has increased for loans to commercial complexes, apartment construction, and land plotting.

According to bankers, the real estate market hit a low in the last fiscal year due to the economic downturn, and restrictive measures of the government and the central bank. The government restriction on land plotting due to the delay over the classification of lands also hit the realty market hard. And, this was also reflected in BFIs' lending to the realty sector, they said.

During the Covid-19 pandemic, the abundance of cheap money in the financial system fueled asset class investment boom causing massive growth in sectors such as real estate and the stock market. In addition, businesspersons invested the money they received as working capital loans from banks in real estate.

As soon as the liquidity crunch hit the banking sector, the flow of cheap money stopped and the market eventually went into a deep recession. On the other hand, the central bank also tightened lending of banks and financial institutions (BFIs) to the real estate sector, reducing the loan-to-value (LTV) ratio in the Kathmandu Valley to 30 percent and 40 percent outside the valley in the monetary policy for the Fiscal Year 2022/2023.

As banks and financial institutions struggled with liquidity management in the first eight months of the last fiscal year, the growth in BFIs' lending to the realty sector also slowed down, bankers said. "There was lesser demand for realty loans in the last fiscal due to higher interest rates and liquidity crisis in the banking sector," said Nischal Nath Pandey, CEO of Sanima Bank.

With the government lifting restrictions on land plotting recently, bankers expect demand for realty loans will rise in the current fiscal. "Since the second week of August, there have been more inquiries about such loans, which indicates realty loans could surge in coming months," said Pandey. 
 

BFIs' Disbursement of Realty Loan (Residential & Real Estate)

The price of gold has dropped by Rs 300 per tola in the domestic market on Friday.

According to the Federation of Nepal Gold and Silver Dealers’ Association, the yellow bullion is being traded at Rs 112, 500 per tola today. It was traded at Rs 112, 800 per tola on Thursday.

Meanwhile, tejabi gold is being traded at Rs 111, 950 per tola. It was traded at Rs 112, 250 per tola.

Similarly, the silver is being traded at Rs 1,470 per tola today.

The Tatopani checkpoint where Nepal shares a border with its northern neighbor China is to remain open from Friday.

The Tatopani checkpoint wherein human mobility has been halted for long will come into operation tomorrow.

A meeting between the Chinese and Nepali officials held at Lhasa on Tuesday decided to permit movement of the general public through the border point, informed Chief District Officer Ramesh Neupane. "We have made all necessary preparations from the Nepal side", he said.

The movement of goods carrying vehicles resumed three months back in the bordering checkpoint that has remained closed since the 2015 earthquake.

CDO Neupane further said that the human mobility through the border point will remain open from Friday onward.

According to him, locals from Sindhupalchowk district will receive a pass having a year permit for mobility through the border point.

The government has finally approved the Electricity Bill from the Council of Ministers, which once approved by the parliament, will pave the way for the private sector to engage in power trading.

The much-awaited bill by the Nepali private sector will be tabled at the federal parliament by Energy Minister Shakti Basnet for parliamentary endorsement.

Once the bill is endorsed by the parliament and authenticated by the President, the Nepali private sector which has been solely involved in electricity generation till now, will be allowed to be involved in the power trading. As of now, the state-owned power utility Nepal Electricity Authority (NEA) has a monopoly in power trading.

This signifies a significant shift in the power sector, allowing private entities to actively participate in buying and selling electricity. The proposed law aims to create a framework that enables private sector involvement and facilitates competition in the power trading market.

The Nepali private sector, including independent power producers, has been advocating for their involvement in power trading. This demand stems from the fact that the Nepal Electricity Authority (NEA) currently holds a monopoly on power purchase agreements (PPAs), leaving no other entity in the country authorized to sign such agreements.

In the bill, it has been proposed that the Energy Ministry should grant licenses to the entities that have been registered with the purpose of power trade.

The government has brought forward the electricity bill with provisions that a single entity cannot be involved in the generation, transmission, and distribution of electricity. This provision means the state-owned NEA has to be unbundled.

It is mentioned in the bill that if any entity is currently involved in the generation and transmission of electricity, it has to be unbundled within five years.

The government has also proposed to issue generation licenses for hydropower projects through competition. Currently, the Department of Electricity Development (DoED) initially issues survey licenses for a five-year period, during which the power developers will have to complete the study and then submit the application to get generation licenses. Now the government will study the projects itself and invite the private sector to get hydropower projects through competition.

While the Electricity Bill to amend the Electricity Act 1992 had reached the parliament earlier, it got stuck for more than two years and failed to get endorsed. The then Energy Minister Pampha Bhusal withdrew the bill from the parliament in September 2022.

The Sher Bahadur Deuba-led government did make efforts to facilitate the entry of the private sector into power trading by introducing an ordinance last year. The Deuba government withdrew the long-pending Electricity Bill at the National Assembly and opted for an ordinance instead.

In October 2022, the Deuba government passed an ordinance to ratify the Electricity Act 1991 to give licenses to the private sector for power trade. However, the then President Bidya Devi Bhandari did not endorse the ordinance sent by the government for authentication.

The Nepali power producers have been gearing up for power trading licenses by establishing power trade companies. According to the Department of Electricity Development (DoED), Nepal Power Exchange Ltd (NEPEX) and Power Trading and Energy Exchange Ltd (PTEEL) have applied for power trading licenses. Similarly, Nepal Infrastructure Bank has applied to the Ministry of Energy, on behalf of the Power Trading Company (PTC) Ltd, and the Himalayan Trading Company is also preparing to register an application for the license.

While the private sector in Nepal is still awaiting the trading license to sell electricity in both domestic and foreign markets, some private entities have already signed the memorandum of understanding (MoUs) with Indian companies for cross-border power trading.

The Nepal Power Exchange Limited (NPEL), subsidiary of IPPAN has already signed an agreement with Manikaran Power Limited, India to carry out cross-border electricity trade. As per the MoU, the Indian company will buy 500MW of electricity from the Nepal Power Exchange Limited besides investing in the Nepali company itself.

During the Power Summit 2023, Nepali and Indian companies signed initial deals for selling 2,200 MW of electricity to India. Manikaran Power Limited signed a memorandum of understanding (MoU) to purchase around 200MW of electricity directly from the hydropower projects. Vedanta Resources, a sister company of Vedanta Limited, also initiated the process to buy 2,000MW of hydropower from Nepal in the next five years.