Starting new fiscal year, banks to fix interest rates on their own
Doing away with the gentlemen’s agreement, banks have decided to set the interest rate themselves. Breaking the long-standing interest rate cartelization practice, the meeting of the Nepal Bankers Association (NBA) on Thursday decided that it was the right time to let the banks decide the interest rate.
Till now, commercial banks used to determine the interest rate as per the decision of the NBA. Now, the NBA decision is not required to fix the interest rates. They (banks) can determine the interest rate of deposits and loans every month based on their requirements.
With this, interest rates from the new fiscal year that begins on July 17 will vary from bank to bank. With the banking system having investable funds above Rs 400bn, the majority of commercial banks are preparing to reduce interest rates on deposits in Shrawan (mid-July to mid-August)
Santosh Koirala, Vice President of the NBA and Chief Executive Officer (CEO) of Machhapuchhre Bank, said that they have decided to allow the banks to determine interest rates. “With Thursday’s decision, banks will be able to determine interest rates in their own way from mid-July,” said Koirala.
According to Everest Bank CEO Sudesh Khaling, Thursday’s decision will end the unhealthy competition in the market. “There was unhealthy competition in the market when all banks had the same interest rate. Now the deck has been cleared for banks to fix the interest rate based on their requirement,” he said. “And, customers can go to their preferred bank to conduct their banking transactions.”
However, banks have to follow the parameters set by the Nepal Rastra Bank (NRB) while fixing the interest rates. As per NRB’s guidelines, banks and financial institutions can reduce the interest rate up to 10 percent.
Commercial banks had decided to keep the deposit interest rate unchanged for the month of Ashad (mid-June to mid-July). Since the regulatory provision allows the banks to reduce interest rates by 10 percent, the interest rate on fixed deposits can come down to nine percent in Shrawan from the current 9.99 percent.
Currently, the banking system has deposits amounting to Rs 5,736bn, while loans totaling Rs 4,854bn. Since Baisakh, the banking system has collected Rs 242bn in deposits. In the first three weeks of Ashad (the last month of the fiscal year), Rs 147bn in deposits have been added to the banking system. With the improvement in liquidity, the CD ratio currently stands at 82.11 percent. Banks can provide loans with a CD ratio of up to 90 percent.
With the liquidity position becoming easier, the interbank interest rate has also decreased. The interbank interest rate has come down from seven percent during the review period to 1.36 percent.
After reducing the deposit interest rate in Baisakh (mid-April to mid-May), the NBA, the association of CEOs of commercial banks, decided to keep it unchanged for the month of Jestha (mid-May to mid-June).
In Baisakh, under huge pressure from the private sector, NBA lowered the deposit interest rate to 9.99 percent for individual depositors. Similarly, the interest rate for institutional deposits was lowered to 7.99 percent from nine percent.
Gold price drops by Rs 300 per tola on Sunday
The price of gold has dropped by Rs 300 per tola in the domestic market on Sunday.
According to the Federation of Nepal Gold and Silver Dealers’ Association, the yellow bullion is being traded at Rs 112, 200 per tola today. It was traded at Rs 112, 500 per tola on Friday.
Meanwhile, tejabi gold is being traded at Rs 111, 650 per tola. It was traded at Rs 111, 950 per tola.
Similarly, the silver is being traded at Rs 1,480 per tola today.
Gold price increases by Rs 100 per tola on Friday
The price of gold has increased by Rs 100 per tola in the domestic market on Friday.
According to the Federation of Nepal Gold and Silver Dealers’ Association, the precious yellow metal is being traded at Rs 112, 500 per tola today. It was traded at Rs 112, 400 per tola on Thursday.
Meanwhile, tejabi gold is being traded at Rs 111, 950 per tola. It was traded at Rs 111, 850 per tola.
Similarly, the price of silver has increased by Rs 40 and is being traded at Rs 1,480 per tola today.
‘Suspend cooperatives registration in urban areas for a year’
The Cooperative Sector Reform Suggestion Task Force has recommended that the registration of savings and credit cooperatives be suspended for a one-year period in metropolitan cities, sub-metropolitan cities, and municipalities.
While there are more than 31,000 cooperatives in the country, the majority of those who’ve turned problematic are savings and credit cooperatives. Hence, the task force suggested the suspension of registration and extension of their work area.
“Through the amendment of some Nepal Acts, by amending the Cooperative Law, the registration of savings and credit cooperatives in metropolitan cities, sub-metropolitan cities, and municipalities, and permission to expand their scope of work should be stopped for one year,” reads the recommendation of the task force. The task force submitted the report to Prime Minister Pushpa Kamal Dahal on Monday.
Amid rising incidents of cooperatives turning problematic and misusing the depositors’ money, the government in the second week of May formed the task force headed by National Planning Commission member Jayakant Raut.
According to Raut, the task force has suggested freezing the bank accounts, immovable property, and passports of the directors of cooperatives that have turned problematic.
The task force has also suggested fixing the loan limit to be given to directors of cooperatives as well as members of the audit committee. It has also recommended that directors who've taken loans from their organizations should pay such loans within six months.
Depositors have lost billions of rupees due to the lack of effective regulation of savings and credit cooperatives by the government. In the absence of effective regulation, deposits worth billions of rupees are at risk as several cooperative operators indulged in reckless investments.
According to the Department of Cooperatives, problems have been observed in about 100 cooperatives. Although the department does not have a definite data, billions of rupees of depositors have sunk in those cooperatives.
Depositors have not got back Rs 14bn from Shiva Shikhar Multi-purpose Cooperative. Kedar Nath Sharma, the former president of the cooperative has been recently arrested by the police from India.
Similarly, Dev Kumar, director of Image Savings and Credit Cooperative, is absconding after defrauding depositors’ money worth Rs 2.5bn.
According to government data, there are 30,879 cooperative institutions across the country. These cooperatives’ total share capital is Rs 94bn while their savings stand at Rs 477bn. Their loan disbursement is estimated at Rs 426bn.
