November 13: Amid pressure from industrialists against the excessive hike in interest rates and service charges by banks and financial institutions, Nepal Rastra Bank has instructed the BFIs to return the renewal fee and premium collected from the debtors against the law.

After the central bank instructed BFIs not to collect any amount against the directive on interest rates, BFIs have reportedly started returning the money to the customers.

“Banks and financial institutions cannot later change the premium rate mentioned while signing the offer letter,” said Dr Gunakar Bhatta, spokesperson of NRB, adding, “We have found that banks have collected additional interest rate by increasing the premium rate and have therefore instructed them to return such amount.”

However, he did not have the exact figure of the amount returned by BFIs.

The Unified Directive on Loan Management issued by NRB has a provision under which banks can fix the base rate by adding 0.75 percent profit on their cost incurred and then add a certain percentage of premium rate to determine the interest rate. Although the interest rates of banks increase or decrease automatically when the base rate fluctuates every quarter, the premium rate remains constant.

As per the directive, banks must clearly mention the premium rate in the offer letter to its customers. The premium rate cannot be increased later. Banks are required to publish the interest rate on  deposits as well as the premium rate of loans one day before the start of every new month.

Lately, banks have increased the interest on loan to the new borrowers citing liquidity crunch. In doing so, they also increased the premium rates of old borrowers in order to increase the interest rate. The central bank started looking into the matter after the industrialists as well as general public started protesting against such move of the banks.

The Federation of Nepalese Chamber of Commerce and Industry (FNCCI) had met the Governor of Nepal Rastra Bank Maha Prasad Adhikari and submitted a memo stating that banks have been collecting  interest rates at their whims. They had complained that the banks had increased the interest rate on old loans without informing the borrowers.

The Unified Directive has provision for the banks to inform the customers about any change in interest rate immediately through SMS/email. The borrowers have complained that the banks did not comply with this provision.

Banks have also been found charging renewal fee once a year on term loans. Bhatta said that the central bank has asked for data from banks after receiving complain in this regard and have instructed the banks to return the money if collected against the law.

Although the industrialists had started nation-wide protest against the hike in interest rate, the protest has been deferred until the election upon the request of FNCCI.