KATHMANDU, Feb 13: Commercial banks have lowered the average interest rate on deposits to 4.57 percent for the coming month starting Friday.
According to Nepal Rastra Bank (NRB), the average deposit rate for the period between mid-February and mid-March has been reduced by 0.12 percentage points from 4.68 percent in the previous month.
Among the 20 commercial banks, Global IME Bank has slashed the interest rate on individual fixed deposits by 0.75 percentage points — the highest reduction. For institutional fixed deposits, Nepal Investment Mega Bank has cut the rate by the highest margin of 0.5 percentage points.
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Nepal Bank Limited is offering the highest deposit rate of 5.10 percent for the upcoming month, while several banks have fixed their rates as low as 4.25 percent.
Bankers attribute the decline in deposit rates to rising deposit collections amid sluggish loan demand. Despite various measures introduced by the NRB to stabilize interest rates, the central bank has seen limited success.
With credit demand remaining weak, excess liquidity has continued to pile up in banks and financial institutions (BFIs). To absorb the surplus funds, the NRB has been using instruments such as repo and reverse repo operations, adjustments in reserve requirements, fixed deposit collections, and the Standing Deposit Facility (SDF).
In recent months, the central bank has also allowed BFIs to place deposits with it for up to 175 days. NRB records show that it absorbed around Rs 200 billion in excess liquidity from banks and financial institutions over the past year.
The NRB has barred banks that offer savings interest rates below the lower bound of the interest rate corridor from accessing the SDF. This provision has limited banks’ ability to sharply reduce savings rates.
Meanwhile, after directing banks to maintain a maximum one-percentage-point spread between interest rates on individual and institutional fixed deposits, the NRB has removed the cap on institutional deposit rates. This has enabled banks to lower the maximum rate on individual fixed deposits.
Through its monetary policy, the NRB has targeted a 12 percent expansion in private sector lending in the current fiscal year. However, credit growth stood at only 3.6 percent as of mid-January. In the previous fiscal year, private sector credit expanded by 8.4 percent.
