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RMA cautions banks to be wary of invoice issued by car dealers

The Royal Monetary authority (RMA) has issued a directive to all financial institutions to sanction vehicle loans based on the invoice submitted for tax purpose instead of the invoice issued by the car dealers.

The notification that is circulating on social media states that the central bank, during the recent onsite inspection found that financial institutions were granting vehicle loans based on the invoice issued by the car dealers to the borrowers.

It was also found that the price of the cars reflected in the invoice issued by the car dealers is higher than the price reflected in the invoice submitted to the department of revenue and customs for tax purposes.

A sources from one of the financial institutions said that most banks sanction vehicle loans based on the invoice the car dealers provide while other regular instruments like repaying capacity, income of borrowers and loan to value ratio prescribed by the central bank are applied.

The source also said that there is a possibility of collusion between the borrower and car dealers to inflate the vehicle price so that the borrower can use the excess loan amount elsewhere.

However, another source said that the tightening of loan to value ratio by the RMA meant more equity portion from the borrower. To make up for that, he said, car buyers availing vehicle loan could inflate the price on the invoice.

The notification states that a special onsite inspection team will be deputed to verify the documents pertaining to transport loans. The central bank has also cautioned financial institutions on the possible consequences that might arise due to such practice.

Sources from the central bank said that there is no proof as yet, but an investigation team will be deployed soon.

The financial institutions as of December last year provided a loan of Nu 5.5B towards the transport sector, which is an increase of more than Nu 1B compared with January last year.

Records with the Road Safety and Transport Authority show that the number of vehicles increased to 94,956 in April this year from 88, 227 in June 2016.

This means that about 22 new vehicles were bought every day during the course of 10 months. Almost half of these vehicles imported are plying the streets of Thimphu.

The central bank on August 1 last year issued a circular to all financial institutions informing them about the loan to value ratio on motor vehicle or transport loan being revised from 50 percent to 30 percent.

This means that financial institutions will only provide 30 percent of the vehicle cost as loan and the loan applicant will have to inject the remaining 70 percent as equity.

The rationale was to combat the negative consequences of GST that led to a decrease in the value of imported goods, including vehicles.

Tshering Dorji

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