Banks see deposits move from saving to FD accounts

Published On: April 15, 2017 12:40 AM NPT By: Sagar Ghimire  | @sagarghi

KATHMANDU, April 15: Bank and financial institutions (BFIs) are seeing the exodus of depositors from saving and call deposit accounts to fixed deposits following the rise in interest rates of fixed deposits. 

As the interest rates on fixed deposit have climbed to as high as 13 percent in the wake of shortage of lendable funds in the BFIs, depositors are shifting their money from saving and demand deposits to cash in on sudden rise in interest rates.

While BFIs were quick to raise the rates on fixed deposits by introducing various schemes, they are largely shying away from raising interest rate on saving accounts which holds major share in total deposits. Share of demand and saving deposits in total deposits, however, has gone down in recent months as depositors have started withdrawing their cash from these types of deposit accounts which offer lower returns compared to fixed deposit accounts. 

According to Nepal Rastra Bank (NRB), the share of demand deposits fell to 6.9 percent in mid-March 2017 from 9.1 percent a year ago.  Similarly, the share of saving deposits has dropped to 37.6 percent from 44.1 percent. Now, the share of fixed deposits has increased to 38.4 percent in mid-March 2017 from 28.5 percent a year ago, according to the data of the central bank.

Bankers say though deposits have been shifting from one type of account to another in expectation of higher interest rate or from one bank to another bank, new deposits are not flowing into the banking system. 

“It is natural for depositors to shift their deposits from saving or demand deposits to fixed deposit when interest rate gap between these accounts is so high,” said Bhuvan Dahal, an executive member of Nepal Bankers Association -- an umbrella organization of commercial banks in Nepal.

“Even depositors in our banks are shifting their deposits from saving to fixed deposits when we are offering one of the highest rates on saving deposit,” Dahal, who is also the CEO of Sanima Bank Ltd, said.

Sanima Bank Ltd provides 5 percent interest rates on saving deposit accounts. 

Dahal also said that there has not been much rise in new deposits. “What we are seeing now is the conversion of accounts of the deposit funds that is in one or another bank,” he added. 

Banks have been jostling to lure savings of public or deposits from rival bank and financial institutions to get funds to float as loans and investments in the wake of shortage of lendable fund for the last few months. With slowdown in deposit growth and sudden surge in credit flow, many BFIs have seen their credit to core-capital-cum-deposit (CCD) ratio crossing the regulatory limit of 80 percent. This has crippled their lending capacity. While the NRB offered some relaxation through the mid-term review of the monetary policy in calculating the CCD ratio to give them leeway to expand credit, they have not added much fresh deposits so far. 

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