Banks Fail to get New Deposits despite Raising Interest Rate

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Banks Fail to get New Deposits despite Raising Interest Rate

September 29: Deposit collection of commercial banks has not increased despite the banks having raised interest rates on deposits to more than 10 percent. The commercial banks had raised interest rates from September 17 onwards. With the increased interest rate, banks have been able to collect only Rs 8.32 billion deposits, informed Nepal Bankers Association.

In a week before the interest rate was raised, Rs 26.30 billion was raised while the deposits collected  a week before it was Rs 16 billion. Deposits even close to this volume couldn't be collected ever since the interest rate was revised.

Until September 17, commercial banks were providing seven percent interest rate on deposits. Commercial banks had increased interest rate due to the liquidity crunch. Sunrise Bank and Sanima Bank had increased the interest rate to double digits while other banks had raised it to more than nine percent. 

With the expectation to manage liquidity, banks had increased the interest rate. However, deposit collection hasn’t increased as expected. At present, due to lack of government expenditure, deposits in banks are declining. Government expenditure is considered to be the major source of bank deposits. 

Santosh Koirala, Chief Executive Officer (CEO) of Machhapuchchhre Bank, said despite the increase in interest rates, deposits did not grow as expected.  "Government spending, donors' funds and remittances are the major sources of new deposits. Since there has not been any government expenditure, no funds received from donors and the inflow of remittances is also not encouraging, therefor the deposit collection has not increased," added Koirala.

Ever since the banks announced an increase in interest rates, deposits from one bank have been transferred to another bank. "Customers are depositing their money in the bank which is offering the highest interest rate," he said, adding, "However, there is no increase in deposits in the overall system. The government should step up its spending to increase the volume of deposits while banks might also witness increase in deposits post Dashain.” 

People tend to keep cash at home for Dashain which has also affected deposit collection of banks. Bankers say the number of people withdrawing money is higher than the number of depositors due to the festive season. 

Although the collection of deposits has not increased, the credit flow has increased significantly. Since September 17, banks have disbursed loans of Rs 30.83 billion against the deposit collection of Rs 8 billion. A week before it, banks had provided borrowers with loans of Rs 28 billion and Rs 25 billion the previous week. 

Koirala said that loan disbursement has increased despite the shortage of liquidity. He said it is the right time for the credit flow. "Due to the festive season the economic activity is increasing and imports is also set to increase. Accordingly, the flow of credit increases at this time," he said, "In some cases we make commitment to many clients to give loans at this time. Therefore, credit flow has increased. But there is a problem in managing resources."

 

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