Commercial banks to enjoy autonomy to fix interest rates of deposits on their own

KATHMANDU, July 14: Commercial banks will be setting the interest rate of deposits on their own as the Nepal Bankers’ Association (NBA) on Thursday decided not to intervene in the autonomy of the banks to make their own decision on the interest rates.

As of now, the umbrella organization of the ‘A’ class banks has been fixing the upper band of the interest rate of deposits. The NBA’s meeting held earlier on Tuesday decided not to impose a cartel on the interest rates of bank deposits.

“In the new development, the association will not be imposing the upper limit on the interest rate,” said a banker.

At a time when the NBA is being criticized for creating a cartel to fix the interest rates of banks, the association members have come to a consensus. After the banks have adequate liquidity and are in cushion, they have consented to fix interest rates on their own.

According to Nepal Rastra Bank (NRB), banks now have a loanable fund of Rs 400 billion. There is a massive rise in deposit collection compared to the snail-paced growth in lending by banks.    

Even the central bank is also blamed for breaching the norms of the market economy by influencing banks to fix the interest rates. Since May 9, NRB has allowed the banks and financial institutions (BFIs) to alter their interest rates on a monthly basis, while the BFIs have to make public their interest rates before the start of a new month.  

The central bank has permitted the banks to fluctuate up to 10 percent of their interest rates at a time. Currently, banks have been providing interest rates of up to 9.99 percent per annum on fixed deposits.

With the NBA’s decision, banks can now fix their interest rates in reference to the competitive market rate and their own liquidity position. This is expected to make the country’s banking business more competitive. 

 
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