Thukten Zangpo

Finance Minister Lekey Dorji said that individuals can avail personal loans from financial institutions (FIs) exceeding Nu 0.5 million during a question-answer session in the National Council on July 3.

Although the ceiling to avail personal loans from a FI is Nu 0.5 million, Lyonpo clarified that these loans can be availed from multiple banks.

He, however, added that loan to income ratio should be maintained at 70 percent maximum. This means the total monthly loan payments (including any existing loans) cannot be more than 70 percent of monthly income.

Currently, an individual can avail personal loan of Nu 0.5 million from a bank for a repayment period of five years.

Lyonpo was responding to the question raised by the Tashigang MP, Sonam Tobgyel, on government measures to revise and increase the personal loan limit.

He said that the current economic landscape necessitates a revaluation of this loan limit to ensure effectiveness in addressing evolving financial requirements.

Sonam Tobgyel proposed extending the loan term to 10 years and loan amount to Nu 1 million.

The RMA issued a directive on August 30, 2021 regarding personal loan, imposing a maximum cap of Nu 0.5 million with a maximum term of five years.

“Contrary to the notion that the Nu 0.5 million limit safeguards our external reserves, the data presents a different perspective,” Sonam Tobgyel said.

As of December 2022, the total loan exposure reached Nu 192.12 billion, with significant allocations towards housing, construction, services, tourism, and transportation sectors.

Sonam Tobgyel said that these loan allocations contributed to imports, potentially straining the external reserves.

He added that the country’s inflationary trend, coupled with static loan limits, may potentially strain the purchasing power of people and asked about the initiatives undertaken by the government to ensure financial inclusivity besides effectively mitigating inflationary pressures.

The headline inflation rate was reported at 4.87 percent as of April this year.

The finance minister said that the increase in the personal loan amount would not be beneficial to rural borrowers since it was salary-based.

Lyonpo suggested that people consider alternative solutions like vehicle loans, housing loans, or transport loans offered by banks, tailored to specific needs. Financial products with FIs increased from 13 in 2019 to 19 today.

He added that the government plans to reduce the minimum lending rate, currently at 6.91 percent.

To promote financial inclusivity, Lyonpo said that the RMA had established a unit with separate provisions for business and personal loans like micro-finance, and priority sector lending, among others.

He added that the government is also coming with the green taxonomy policy for green financing in rural areas.

Lyonpo also highlighted the need to control inflation by managing money supply in the market.