Interest Rates on Deposits Come Down to Single Digit

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Interest Rates on Deposits Come Down to Single Digit

October 22:  Commercial banks have lowered the interest rate on fixed deposits to single digit following the intervention of Nepal Rastra Bank.

Not only commercial banks but also development banks and finance companies have reduced the interest rates on fixed deposits to single digit, effective from October 21.

As per the revised interest rate, commercial banks will now provide a maximum of 9.36% interest on deposits. Similarly, development banks and finance companies have set a maximum interest rate of 9.5%  and  9.6% respectively.

Seven commercial banks had maintained interest rates in double digits to resolve the problem of liquidity crisis. Sunrise Bank had raised the interest rate on deposits to 11.10%.  Likewise, some other commercial banks, development banks and finance companies had also raised interest rates to double digits. 

In fact banks had started raising interest rates since September due to the liquidity crunch. In September, Sunrise Bank had raised the interest rate to 10.07%. Though Sunrise Bank had lowered the interest rate in October, majority of banks had raised it to double digits. 

Following the reckless increase of interest rates, Nepal Rastra Bank (NRB) had BFIs to revise the interest rate fixed for October. The central bank also made telephone calls to the chief executive oficers of banks and financial institutions on Wednesday and asked them to revise the interest rate limit.

Bhuwan Dahal, President of the Nepal Bankers' Association said that the interest rate on deposits has been lowered to single digit as per the policy of the central bank. “As banks started to raise interest rates, discussion over interest rate stability ensued. And banks were also pressurized to make changes to interest rates after NRB issued the directive,” said Dahal. 

He added that with the reduction in interest rates, it will be easier for entrepreneurs to conduct business. "As interest rate on deposits falls, so does the interest rate on loans." In this case, it will be more convenient for those who do business on loans,” he said.

Dahal further said that drop in interest rates would challenge some banks to maintain the CD ratio at 90 percent. "Banks with a CD ratio of above 90% may face problems after interest rates fall. In such a situation, NRB needs to provide support to those banks and other banks and financial institutions may also have to help by buying loans," Dahal said. 

 

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