KATHMANDU, August 9: While banks have observed growth in their deposit volume in recent weeks, bankers say that the skyrocketing interest rates are less likely to come down at least before the second quarter of the current fiscal year 2017/18.

Depositors are already getting up to 9 percent return on saving accounts while the rate on fixed deposit hovers around 13 percent as bank and financial institutions (BFIs) struggle to attract lendable funds in the wake of 'credit crunch' problem. 

Bankers say that the deposit rates are on 'stabilization' course and that they were on 'wait-and-watch' mood. According to banking executives, they will wait till second quarter, or mid-October, to review the interest rates. 

Almost all bank and financial institutions (BFIs) have published their interest rates for the first quarter.  

“Deposit is now in a comfortable position. However, it would be too early to reduce lending rates based on deposit growth figure of a week,” Gyanendra Prasad Dhungana, vice president of the Nepal Bankers' Association (NBA), told Republica.

Bankers point to a recent circular of the Nepal Rastra Bank (NRB) on interest rates to defend their move of not reviewing interest rates anytime soon. “The central bank's recent circular restrict us from changing rates frequently. It would not be a foresighted decision, either,” Dhungana, who is also the CEO of Nepal Bangladesh Bank Ltd, told Republica. 

The surge in government spending at end of the fiscal year pumped cash into the banking system which was, until recently, facing an acute shortage of lendable fund. Due to mismatch in deposit and credit growth, many BFIs have even breached prudential lending limit, i.e. core capital-cum-deposit (CCD) ratio, crippling their ability to lend further. 

In order to lure more deposits to get rid of 'credit crunch', BFIs have been raising their interest rates at a rapid pace which has, in turn, also driven up their lending rates. The government, which was maintaining huge cash balance due to its failure to boost capital spending, increased its expenditure significantly in the last month of the last fiscal year. Such spending came into the banking system as deposits, BFIs some relief.      

Statistics compiled by the NBA shows that deposit mobilization of 28 commercial banks jumped by a whopping Rs 145 billion in the past two months alone (between June 9 and August 4) to Rs 2,109 billion, while their loan disbursements grew by Rs 59 billion in the same period to Rs 1,725 billion. This is a huge jump in deposits compared to a meager growth in previous months. For example, BFIs saw their deposits grow by Rs 14 billion in previous two months (between April 13 and June 9) to Rs 1,964 billion, while lending went up by Rs 10 billion in the same period to Rs 1,666 billion. 

 
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