June 14: Banks have decided not to raise the interest rate on deposits from mid-June to mid-July. According to the Nepal Bankers Association, the interest rate fixed for mid-May to mid-June will get continuity for another month as well. Commercial had banks agreed to provide the maximum interest rate of 11.3 percent for personal deposits and 10.3 percent for institutional deposits on one-year term deposits.

As per the arrangement made by NRB, banks have to provide an additional one percentage point or 12.03 percent interest rate on deposits received from remittances.

Banks and financial institutions are facing liquidity crisis as deposit collection of banks have not increased proportionately to the credit flow given by banks aggressively.

The NRB intervened in the unhealthy competition among banks to attract deposits by raising interest rates. NRB issued verbal instructions to the banks on October 19 warning them not to raise the interest rates. The next day, NRB made arrangements to reduce the interest rates to only 10 percent.

As per the direction of NRB, the Nepal Bankers Association, an umbrella organization of chief executive officers (CEOs) of commercial banks, the Development Bankers Association, an association of CEOs of development banks, and the Nepal Finance Companies Association, an association of finance company CEOs, reached a formal agreement and have not competed on interest rates. They are implementing a gentleman’s agreement not to raise interest rates from mid-March to mid-June as new deposits are not added even though they increased the interest rate to 10 percent in mid-February.

Due to the increase interest rates on deposits, interest rates on bank loans are becoming more expensive. According to Nepal Rastra Bank, the average base rate of commercial banks stood at 9.30 percent in April 2022, which was 6.83 percent in April 2021.