Most banks lower deposit rates

Most of the commercial banks have reduced interest rates on individual fixed deposits for the month of Jestha (mid-May to mid-June). Eight commercial banks have kept their rates unchanged, while nine have reduced their rates, and three have made a slight upward revision to their rates. As a result, the average interest rate on individual fixed deposits will drop to 7.06 percent in the next month compared to 7.14 percent that the banks are providing now.

Banks have been gradually reducing interest rates on deposits amid low demand for credit and excess liquidity in the banking system. Banks now offer a maximum of 6.8 percent interest on institutional fixed deposits, while they are offering as high as 8.8 percent on remittance fixed deposit accounts. Banks cannot maintain a gap of more than five percent between the upper limit of fixed deposits and the lower limit of savings deposits. This implies that interest on saving deposits will also come down.

The central bank allows banks to change their interest rates by a maximum of 10 percent of their average interest rate in the previous months. Out of 20 commercial banks in the country, Agriculture Development Bank Ltd is offering the lowest interest rate of 5.66 percent, followed by Nepal SBI Bank (6.39 percent), Rastriya Banijya Bank Ltd (6.4 percent) and Everest Bank (6.5 percent). Nabil Bank Ltd and Nepal Bank Ltd are offering 6.75 percent interest rates each, while Sanima Bank has fixed such rates at 6.9 percent.

Laxmi Sunrise, Nepal Investment Mega, Siddhartha, Standard Chartered, Citizens, and Prime Commercial are offering a seven percent interest rate. Seven banks are offering interest rates above seven percent. NIC Asia and NMB Bank Ltd are offering the highest (7.8 percent) interest rates on individual fixed deposits for the month of Jestha.

Commercial banks started publishing rates individually since the beginning of the current fiscal year in mid-July last year. Before that, Nepal Bankers Association used to fix rates citing a ‘gentleman’s understanding’ among banks. Commercial banks have liquidity of around Rs 400bn as demand for loans is not coming, say bankers. Even though lending rates have fallen to a 27-month low, banks are not being able to invest.

Although Nepal Rastra Bank had set a target to increase bank lending by 11 percent in the current fiscal year, banks could increase their lending by only 5.1 percent as per the data till mid-March. With just three months remaining in the current fiscal year, it is impossible to achieve the target of lending growth. Banks, however, are hopeful that the demand for loans will go up in the final quarter as increasing capital spending will create more demand in the market.