NPL in the  picture again

People say the criteria that education loan will not be available to applicants whose family members have NPL is irrational and that those with NPL should not be penalized wherever possible

Following the Royal Monetary Authority’s (RMA’s) notification (page 10) on the issuance or resumption of the education loan on November 12, 2022, financial institutions (FIs) have established criteria for the education loan, which is different from what was practiced earlier. Based on the criteria, if even one member of a family has NPL, education loan cannot be availed from financial institutions (FIs). This, people say is nether fair, not rational as Bhutanese now lead independent lives unlike the past and a family member can be held accountable for what his/her sibling does, until they are equally involved.

Karma Tshering, waiting to go to Australia said he was very happy when the RMA’s notification came.  The notification was a huge relief to those who were planning or had already begun obtaining a loan to continue their studies abroad. However, Karma cannot avail the education loan because of a new criteria. According to the new criteria, individuals who have even one member of the family in the non-performing loan (NPL) defaulters will not be given the loan. And Karma’s brother falls in the list of those with NPL. “But, we have been living separately for more than a decade. I do not know anything about his business, neither have I gained. So why should I be punished for a mistake made by my brother,” he questions.

Due to development, Bhutan’s nuclear family has been decreasing, too. “Everyone lives independently and many siblings do not know what the others are doing. Thus, the criterion on NPL and education loan, based on NPL does not make sense,” a financial expert said.

According to another applicant who requested anonymity, the new criteria has crushed all his hopes. As his family members have NPL, he wants to go to Australia, work and pay back the NPL. But he now cannot. “It is fortunate that RMA reinstated the education loan program and permitted three FIS to offer it. But criteria like the NPL one is not fair,” “How can my family clear the loans,” he said, if opportunities are not provided to people to make money.

The same has been the issue with contractors as the cooling period was incorporated. “We had to agree on many aspects on NPL. However, the decision made that those who have even one member from the family with NPL is not eligible for the loan, is irrational from all aspects. Or are FIs trying to punish us further, ” one contractor said.   

Meanwhile, criteria like the above weren’t previously mandated, but they have now been established to evaluate the loan properly. Out of the five commercial banks, only BNBL, BOBL, and PNBL have been permitted to offer education loans. These loans have been divided into two categories: secured loans, and unsecured loans. Only borrowers between the ages of 18 and 35 are permitted to take out unsecured loans without collateral in an amount equal to the amount specified in the VISA requirement letter for the particular country or Nu.3.50 million, whichever is less.

Further, as per the new requirements, only secured loans backed by collateral are available to candidates above the age of 35. The parameters of the new education loan state, “Amount equivalent to the criterion indicated in the VISA requirement letter of the specific country or Nu.5.00 million, whichever is less (if secured by collaterals)”.

One of the applicants stated that “the requirement that applicants over 35 must furnish collateral is predicated on the presumption that every person over 35 possesses some sort of asset or land.” He added that persons over 35 should also be able to apply for unsecured loans.

Samten, a private employee said. “I am 37 and I do not have any collateral. Those that I do are in the villages and not accepted as collateral,” he said. According to him, it is impossible to have a land as collateral in urban Bhutan, when one reaches the age of 35. “All who have attained 35 will not have collaterals,” he said

Another change is that the net income of the applicant’s family member shouldn’t be more than Nu 1mn. “This will definitely benefit those who are not economically well-off, but the other provision that those above the age of 35, will not be provided loans without collateral will hit the same group,” a civil servant said.  

The new criteria requires submission of land ownership letters for all household members (from NLC) specifying the location, area, type, and PAVA value of land. None of the members should have any land valued over the loan amount.

Meanwhile, the NPLs of Bhutanese FIs as of June, this year stood at Nu 16.06bn.

While the BOBL and BNBL have already begun processing loan applications, Druk PNB has not yet done so, citing that it already has about 300 pending applications and wants to give priority to the earlier applicants.

The BNBL received more than 200 applications on the first day, with a total of 400 candidates filling out the form, according to a BNBL official.

Until recently, only Druk PNB and Tashi Bank were commercial banks offering student loans. After hitting the 5% exposure limit of the overall credit ceiling in November, they ceased offering the loan product.

Tshering Pelden from Thimphu