ROYAL MONETARY AUTHORITY OF BHUTAN



ROYAL MONETARY AUTHORITY OF BHUTANGuidelines on Motor Vehicle Loans[Draft](1) Short title Guidelines on Motor Vehicle Loans(2) Authorization The Royal Monetary Authority (RMA) is authorized to issue this Regulation under Section 9 (h) of the RMA Act 2010 in pursuance of the objectives stated in Sections 8 (a), 8(b), 8(d) and 8(e) of the RMA Act 2010 and Section 3 (a) of the Financial Services Act 2011. (3) Application This regulation is applicable to all Banks and other Financial Institutions (collectively referred to as “Financial Institutions” or “FIs”) which are licensed by RMA to perform lending operations in Bhutan. The financing restrictions are necessary to encourage financial prudence among buyers of motor vehicles. RMA will continue to monitor developments in the car market, and will recalibrate the financing restrictions when appropriate. (4) Definitions Terms used within this regulation are as defined below: Borrower means a person applying for vehicle loan.Down payment (Equity portion) refers to the payment which is made by the borrower in cash to cover the difference between the value of the approved loans and value of the assets to be acquired through loans.Loan to Value (LTV) Ratio is the maximum limit up to which a FI shall finance, which shall be based on the value of the vehicle, which is being purchased with a loan.Loan to Income (LTI) Ratio is defined as ratio of total monthly debt obligation to that of monthly disposable income from all sources, expressed in percent. Disposable Income means gross income minus taxes that is net income. (5) Limits and RequirementsThe term of the loan shall be a maximum period of 5 years. The loan shall be disbursed only upon the full down payment made in cash by the borrower and upon submission of all the required documents necessary for the purchase of the vehicle.Multiple raising of vehicle loan on the same collateral shall be strictly prohibited. (6) Loan to Value ratio (LTV)A financial institution shall compute the LTV ratio by using the following formula:LTV= Outstanding amount of loanAppraised value of vehicle being purchased ×100 (6.1) Loan to Value Ratio for Vehicle Loan shall strictly be as follows:-Property ValueMaximum Loan to value (LTV) New Second hand Up to Nu. 8,00,00060%40%Above Nu. 8,00,00050%40%The property value indicated above is the purchase price of vehicle including relevant taxes. Financial institutions shall ensure that LTV limits provided under section 6.1 shall be met at all times by the FI’s. All information provided by the borrowers to the FI shall be verified in full by FI, which shall be supported by a legal document signed by the FI and the borrower. Credit information report from the Credit Information Bureau and the collateral report from the Central Registry shall be procured by the FI’s prior to the approval of the loan. This report should be supplemented by additional enquiries to be made by the FI’s to ensure accuracy of the borrowers’ credit history and the collateral to be mortgaged. FI’s and the borrowers, through a legal undertaking shall also ensure that the proposed collateral for vehicle loan is free of any debt obligations. Loan to Income Ratio (LTI)(9.1) Loan to income ratio is the percentage of a borrower's monthly disposable income from all sources that goes towards paying his monthly total debt obligations.(9.2) Every financial institution shall compute the LTI ratio of a borrower applying for Vehicle loan in accordance with the following formula: LTI= Total montly debt obligation Montly disposable income from all sources ×100(9.3) The total monthly debt obligations of a borrower shall consist of the sum of the monthly repayment installments of all credit facilities granted by financial institutions.(9.4) The monthly disposable income from all sources, including the income from the collateral, shall consist of:Source of IncomeIncome to be considered for the purpose of LTI calculationFixed Income100% of average of past 12 months’ incomeVariable IncomeUp to 70% of the average variable income for the past 12 monthsFixed and Variable Income100% of average past 12 months of income from fixed sources and up to 70% of average variable income for the past 12 monthsThe maximum LTI limit for Vehicle Loan is as follows Disposable IncomeMaximum LTIUp to Nu. 50,00050%Above Nu. 50,000 and below Nu. 100,000 60%Nu 100,000 and above 70%The FI shall obtain a written legal statement, with all documentary proofs, from each borrower regarding his monthly gross disposable income from all sources, all outstanding amount of credit facilities availed, monthly repayments towards them. Internal Risk management and Reporting requirementsFIs shall ensure complete and strict compliance to all the requirements of these guidelines in approving Vehicle Loan which shall be the responsibility of the Board and the management through effective and efficient MIS and internal 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.5000 per day shall be levied to the non-complaint FI until such time the act is rectified. ApplicabilityThese guidelines shall be applicable to all FIs (banks/insurance/pension) engaged in lending business of vehicle loan.This regulation shall come to force with effect from 31st August 2014. ................
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