NIC Asia Bank bows to NBA pressure

Published On: March 14, 2018 06:38 AM NPT By: Republica  | @RepublicaNepal

Decides to limit deposit rates within ceiling fixed by bankers' association

KATHMANDU, March 14: Nepal Bankers Association (NBA) and NIC Asia Bank Ltd have agreed to mend fences after the commercial bank decided to roll back its decision to offer deposit rates higher than the rates capped by the association through an 'informal understanding'. 

With the commercial bank's decision to end its scheme of offering interest of 10 percent on savings and 12 percent on fixed deposit from Friday, the NBA has also agreed to lift the restriction to its member banks to carry out interbank transactions with NIC Asia Bank Ltd. 

The commercial bank and the group of 28 commercial banks were at loggerheads after the former published a scheme by challenging the 'gentleman agreement' of capping fixed deposit and saving rates at 11 percent and 8 percent, respectively. 

After the NIC Asia Bank published the rates last week, the NBA on Friday decided to exclude NIC Asia Bank from all kinds of interbank transactions including foreign exchange. 

Though the decision was widely criticized as an attempt to ostracize a commercial bank for disobeying what appears to be an interest rates cartel, NIC Asia seems to have succumbed to the pressure of other peers who were told not to carry out interbank transactions for violating an informal understanding on capping deposit rates. 

Sources say that the Nepal Rastra Bank (NRB) facilitated the two parties to reach to an understanding. An NBA source told Republica that the central bank had invited representatives from both NBA and NIC Asia at its office and instructed them to resolve the issue immediately. Following the meeting with the central bank, NBA and NIC Asia Bank representatives sat for the negotiations, the source added.

“We have agreed to resolve our differences. NIC Asia Bank will release a public statement to end its scheme and we have agreed to carry out further discussions for risk management toward resuming interbank transactions,” NBA President Gyanendra Dhungana said.

Earlier, while imposing the decision against doing interbank transactions with NIC Asia Bank, the NBA had said that its members do not want to be exposed to the risks while doing business with NIC Asia. 

Sudheer Nath Pandey, deputy CEO of NIC Asia, said in a statement on Tuesday that the bank has decided to end two schemes -- saving scheme yielding 10 percent interest rate and fixed deposit with 12 percent interest rate -- from Friday due to 'unfavorable circumstances' despite 'immense popularity' of the scheme among customers. 

“Though these schemes have gained popularity among customers, we have realized that the differences with Nepal Bankers Association in recent days on various issues, including interest rates, should be resolved for broader interest of the economy,” said Pandey, explaining the reasons behind phasing out the schemes.

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