Nepal Rastra Bank cautions BFIs not to breach spread rate rule

Published On: March 2, 2021 11:10 AM NPT By: Republica  | @RepublicaNepal

KATHMANDU, March 2: Nepal Rastra Bank (NRB) has warned the banks and financial institutions (BFIs) to take action if they are found not maintaining the spread rate as provisioned by the monetary policy.

According to the NRB officials, the central bank on Sunday wrote letters to the management of the BFIs to face actions if they breach the set guideline. The monetary policy has capped the spread rate for commercial banks at 4.4 percent while it is fixed at 5 percent for the development banks. 

The spread rate is the difference between the interest rates on deposits and loans. Banks have to consider the weighted average of the interest rates on deposits and loans while calculating the spread rate.

Banks are often blamed for maintaining a huge spread gap, charging high interest rates on loans while providing low interest for the depositors, to earn high profit and ensure high rate of dividends to their shareholders.

NRB has issued the caution letters after a number of banks were found breaching the norm set by the regulator, said NRB officials.

Meanwhile, NRB has asked the microfinance institutions (MFIs) to open at least two branches in rural areas, if they wish to open a new branch in the Kathmandu Valley. Issuing a circular on Sunday, the central bank has maintained that one these two new branches outside the Valley should be located in a rural municipality.  



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