February 8: Despite the increase in deposits of banks and financial institutions, the share of fixed deposits has started to decline. After the banks reduced interest on fixed deposits, the portion of general savings have increased, while that of fixed deposits have started decline.

Last year, the banks had increased interest rates due to liquidity crisis. Due to this, the share of fixed deposits in the banks increased. However, Nepal Rastra Bank has said that the portion of fixed deposits has started to decline after the reduction in interest rates after liquidity situation eased in the current fiscal year (FY).

According to NRB, 60.3 percent of the total deposits with banks and financial institutions by mid-January last year were fixed deposits. But by mid-January this year, the share of fixed deposits has decreased to 59.9 percent. While fixed deposits have decreased, ordinary savings have increased. The share of ordinary savings increased from 25.6 percent in the previous year to 26.8 percent in the current year.

Last year, banks offered higher interest rates to increase term deposits. In order to attract deposits, they also introduced a plan to give up to 10 times the initial deposit in 21 years. Since the beginning of the current year, banks have started reducing interest rates, so the share of fixed deposits has also started to decrease. 

As of mid-January of the current fiscal year, banks and financial institutions have collected Rs 6130 billion in deposits and provided loans of Rs 5083 billion. During this period, deposits increased by 6.6 percent, while loans expanded by only 4 percent.

After the liquidity crisis eased, the Nepal Bankers Association decided to end the practice of determining interest through consensus since the beginning of the current fiscal year. This allowed the banks to fix the interest rate individually in the competitive market. As a result, the maximum interest rate of the commercial banks fell below 8 percent in mid-January.

According to the instructions of the NRB, banks are allowed to provide a maximum interest rate of 5 percentage points more on fixed deposits than the minimum interest rate on ordinary savings. There is a provision that the difference between the maximum and minimum interest rates given in all types of local currency deposit accounts, other than call deposits, cannot differ by more than five percentage points. Similarly, there is a provision that banks can give an additional 1 percent more interest on remittance compared to the normal deposits.