October 19: As per the directive given by Nepal Rastra Bank (NRB) to Banks and Financial Institutions (BFIs) to fix their interest rates by the end of Ashoj (mid-October), almost all commercial banks have fixed their interest rates on personal term loans effective from October 17. Even though the Nepal Bankers’ Association has expressed its dissatisfaction in this regard, the banks have already announced interest rates on the personal term loans. However, there are doubts about the effective implementation of the fixed interest rate.
Since Nepal Rastra Bank had directed the BFIs to implement fixed interest rates from October 17, the banks have already made their fixed interest rates public. However, bankers believe that loans are already flowing at a lower rate due to the coronavirus pandemic, and thus the implementation of the fixed interest rates may not be very effective.
The chief of public relations of NIC Asia, Arjun Raj Khaniya fears that the customers will not be attracted to the expensive fixed interest rates as the normal interest rate is now around 8-9 percent. But the long-term debt can be riskier in the future. He adds that the borrowers will probably be drawn towards the cheaper loans due to the coronavirus pandemic.
"As the market has the option of getting cheaper loans, it seems that customers might not opt to go for long-term fixed interest rates. This is the psychology of our society. Therefore, the implementation of the fixed interest rates may be challenging,” he said. However, he thinks that the customers who take fixed interest rate will benefit in the future in case of a higher interest rate on loans due to lack of investable capital or tightening of CCD.
Bodharaj Devkota, Assistant Chief Executive Officer of Citizens Bank, says that even if a fixed interest rate is implemented, its effectiveness will depend on the will of the borrowers.
He says that they are also waiting to observe the demand such loans will generate in the upcoming days. "The effectiveness of the fixed interest rate implementation depends on the mentality of the borrower as the banks are currently lending at their base rates or 8 percent," he said.
The fixed interest rate, which may seem high at the beginning can give the borrowers a sense of relief as it will not increase in the future. However, Nepal Rastra Bank has made a provision that lets the borrowers choose the kind of interest rates they want to take. This has given the borrowers two options to choose from.
Nepal Rastra Bank had issued the Unified Directive, 2077 on September 8, 2020 to maintain fixed interest rates on personal term loans with a repayment period of more than one year. In addition, the interest rate should be determined and published on half-yearly basis for new loans so that it cannot be changed throughout the loan period. There is also a provision to determine and publish the fixed interest rates one month prior to its implementation.