ROYAL MONETARY AUTHORITY OF
BHUTAN
Guidelines 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:
i.
Borrower means a person applying for vehicle loan.
ii.
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.
iii.
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.
iv.
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.
v.
Disposable Income means gross income minus taxes that is net income.
(5) Limits and Requirements
i. The term of the loan shall be a maximum period of 5 years.
ii. 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.
iii. Multiple raising of vehicle loan on the same collateral shall be strictly prohibited.
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(6) Loan to Value ratio (LTV)
A financial institution shall compute the LTV ratio by using the following formula:
𝑳𝑻𝑽 =
𝑶𝒖𝒕𝒔𝒕𝒂𝒏𝒅𝒊𝒏𝒈 𝒂𝒎𝒐𝒖𝒏𝒕 𝒐𝒇 𝒍𝒐𝒂𝒏
𝑨𝒑𝒑𝒓𝒂𝒊𝒔𝒆𝒅 𝒗𝒂𝒍𝒖𝒆 𝒐𝒇 𝒗𝒆𝒉𝒊𝒄𝒍𝒆 𝒃𝒆𝒊𝒏𝒈 𝒑𝒖𝒓𝒄𝒉𝒂𝒔𝒆𝒅
× 𝟏𝟎𝟎
(6.1) Loan to Value Ratio for Vehicle Loan shall strictly be as follows:Property Value
Maximum Loan to value (LTV)
New
Second hand
Up to Nu. 8,00,000
60%
40%
Above Nu. 8,00,000
50%
40%
i.
The property value indicated above is the purchase price of vehicle including
relevant taxes.
ii.
Financial institutions shall ensure that LTV limits provided under section 6.1 shall
be met at all times by the FI’s.
(7) 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.
(8) 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.
(9) 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:
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𝑳𝑻𝑰 =
𝑻𝒐𝒕𝒂𝒍 𝒎𝒐𝒏𝒕𝒍𝒚 𝒅𝒆𝒃𝒕 𝒐𝒃𝒍𝒊𝒈𝒂𝒕𝒊𝒐𝒏
× 𝟏𝟎𝟎
𝑴𝒐𝒏𝒕𝒍𝒚 𝒅𝒊𝒔𝒑𝒐𝒔𝒂𝒃𝒍𝒆 𝒊𝒏𝒄𝒐𝒎𝒆 𝒇𝒓𝒐𝒎 𝒂𝒍𝒍 𝒔𝒐𝒖𝒓𝒄𝒆𝒔
(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:
Income to be considered for the purpose of LTI
calculation
Source of Income
Fixed Income
100% of average of past 12 months’ income
Variable
Income
Up to 70% of the average variable income for the
past 12 months
Fixed
Variable
Income
(9.5)
and
100% of average past 12 months of income from
fixed sources and up to 70% of average variable
income for the past 12 months
The maximum LTI limit for Vehicle Loan is as follows
Disposable Income
Maximum LTI
Up to Nu. 50,000
50%
Above Nu. 50,000 and
below Nu. 100,000
60%
Nu 100,000 and above
i.
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.
(10)
Internal Risk management and Reporting requirements
i.
FIs 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.
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(11)
ii.
All FIs board shall put in place an appropriate credit risk management policy
to ensure proper implementation of these regulations.
iii.
All FIs shall report to RMA in line with the offsite reporting framework which
shall be supplemented by onsite inspections.
iv.
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.
Applicability
These 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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