KATHMANDU, Jan 27: The base interest rate of commercial banks has dropped to as low as 4.27 percent in mid-January due to excessive liquidity in the banking system amid lacklustre demand for loans.
According to the records maintained by 20 commercial banks, they have fixed the average base interest rate for the month of Magh (mid-January to mid-February) at 5.36 percent. As of mid-July 2025, the beginning of the current fiscal year, the base interest rates stood at 6.2 percent - the lowest in the last three years. It has further dropped six months into the current fiscal year amid the ongoing economic slowdown.
The base rate of commercial banks in mid-January declined 1.45 percentage points compared to a year ago when the base rate was 6.81 percent.
Revised interest rate corridor system introduced
A bank’s lending rate is determined by adding a certain premium rate to its base rate. Based on the nature of lending and risk factors, banks add a premium between 1.5 percentage points and 5 percentage points on top of the base rate when they provide loans to their clients.
Eight banks have their base rate below 5.5 percent. Out of these, Standard Chartered Bank Nepal has its base rate of 4.27 percent, the lowest of all, followed by Rastriya Banijya Bank at 4.42 percent. NIC Asia Bank has the highest base interest rate of 6.45 percent.
According to Devendra Raman Khanal, chief executive officer of Rastriya Banijya Bank, the base rate slid to a record low due to excessive liquidity with banks. “The interest rate declines as the demand for loans is pretty low,” said Khanal.
Citing the low demand for loans, many banks have been found issuing loans even by adding 0.25 percent in premium. The interest rates on auto loans and home loans have come below six percent per annum.
Since May 2024, banks have been maintaining their average base rate in single digits. Despite a notable decline in the lending rates, banks have been unable to expand their loan portfolio due to the ongoing economic slowdown.
The records with NRB show that commercial banks have collected deposits of Rs 6.909 trillion as of Thursday, and issued loans worth Rs 5.128 trillion. The credit to deposit (CD) ratio of banks and financial institutions stands at 74.30 percent, compared to the regulatory threshold of 90 percent.
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