NRB Directs Banks to Lower Interest on Loan by 2 Percentage Points

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NRB Directs Banks to Lower Interest on Loan by 2 Percentage Points

May 8: Banks are facing dilemma over implementation of Nepal Rastra Bank (NRB)’s directive to lower the interest rate on loan for the affected businesses by 2 percentage points. As the banks have already made public announcement about reduction of interest rate on deposit by 1 percentage point, they are hesitant to implement the directive of the central bank.

As NRB has reduced the rate of interest by 1 percentage points, all commercial banks had decided to reduce the interest rate on deposits accordingly. Apparently, they reduced the interest rate in savings, fixed deposits and call deposits by 1 to 1.5 percentage points. According to Bhuwan Dahal, chairman of Nepal Bankers’ Association, NRB’s directive has made them confused.

He said that NRB took this decision despite being informed about their preparation to reduce the interest rate by 1 percentage point. “After the directive from NRB, we even shared our concern with them. However, we did not get any response,” said Dahal.

It is estimated that if the decision is implemented around 10 commercial banks will go in loss in the fourth quarter.  “We were planning to reduce the interest rate. But NRB took a unilateral decision without consulting with us,” he said.

NRB had directed the BFIs on April 28 to lower the interest rate on loan given to affected sectors by 2 percentage points. 

According to Gunakar Bhatta, spokesperson of NRB, currently everyone should give high priority to saving national economy rather than looking for one’s own profit.

 “Bankers should give relief to the affected sectors,” Bhatta said. As NRB has given facility to reduce the Cash Reserve Ratio (CRR) to 5 percent, banks will have liquidity of Rs 35 billion. According to Bhatta they can invest the amount in government securities and bond as well. So, they should provide interest relief till mid-July.

 

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