Banks’ decision to hike interest rates courts widespread criticism

Published On: September 22, 2022 08:00 PM NPT By: Republica | @RepublicaNepal

KATHMANDU, Sept 22: Banks have been facing widespread criticism from people from different quarters after they raised the interest rates.

At a time when the economy has started gaining recovery from the impacts of the coronavirus pandemic, banks since last week have increased their interest rates on fixed deposits by 10 percent to 12.13 percent. With the review of their base rate, the interest rate on loans is likely to cross 15 percent from next month.

Speaking at a program on Thursday, Finance Minister Janardan Sharma expressed his dissatisfaction over the banks for raising the interest rates. “As the banks’ move will severely affect the economy thriving for high economic growth, we will be holding talks with the high level government officials in this matter,” Sharma said.

In the aftermath of the banks raising the interest rates, the country’s share market has been posting a dismal picture for the past few days. The daily turnover fell to around half a billion rupees.

Issuing a press statement, the Federation of Nepalese Chambers of Commerce and Industry (FNCCI) has said that the rise in interest rates will increase the risk of the existing firms while it will even hamper the entry of new firms.

Currently, the common people are hit hard by the soaring prices of essentials. The increased interest rates will add an additional financial burden to the people’s daily expenses. The shrinkage in economic activities has even taken down the government revenue collection in recent times.

Currently, banks have been facing liquidity shortage to provide loans to the borrowers. Banks have moved forward to increase their interest rates, claiming to attract more deposits with an expectation to ease the liquidity shortage. “Similar attempts by the banks in the past, however, did not yield positive outcomes,” reads the FNCCI statement.

FNCCI President Shekhar Golchha said the banks' increased interest rates will largely raise the costs of the small and medium enterprises. Golchha urged the Ministry of Finance and Nepal Rastra Bank to intervene in the financial market and check the soaring interest rates.