Lending rates unpredictable: NRB governor

KUVERA CHALISE

KATHMANDU: Nepal Rastra Bank governor today said the central bank had been closely monitoring the ‘rising’ lending rates.

“Though the central bank has already forsaken the practice of fixing interest rates under liberal market economy, it is monitoring the rates closely and will

not let the consumers suffer,” NRB Governor Dr Yubraj Khatiwada told the parliamentary committee on finance and labour relations today.

Lately, banks and financial institutions (BFIs) have been increasing the lending rates claiming that their

cost of fund, coupled by asset-liability mismatch, has increased.

The committee — led by Constituent Assembly member Hari Rokka — approached NRB governor and Finance Secretary Rameshwor Khanal for safeguarding consumers’ interests from unpredictable lending rates that have been steadily rising lately.

“The lending rates are bound to go up but not more than 12-13 per cent and there has to be transparency,” the governor said, adding that the rising cost of fund has upped the lending rates.

“The interest on deposit should match the inflation rate. However, in the competitive market, spread rate — between interest on deposit and interest on lending — has to come down, which has not happened,” he said.

“Low interest rates have dried the deposits,” Khanal said, adding that till last the fiscal BFIs’ deposits were growing by 20 per cent. “But the deposit growth rate has come down lately.”

Delayed budget, low spending in donor-funded projects, coupled by informal economy, have squeezed the capital, forcing the banks to increase the deposit rates that has pushed up the lending rates.

According to him, the finance ministry is serious about not letting the priority sectors be hit hard by the rising lending rates.

“For the specialised sectors like Small and Medium Enterprises the central bank is also providing refinancing facility,” Khatiwada said.

“One of the sectors that has to bear the brunt of the rising lending rates is the hydropower sector,” he said. “However, for hydropower the government has formed an Energy Fund in the budget with Rs 1 billion seed money.”

“There has also been some problems in housing sector but it is not that bad,” he said, promising that it will not hit the banking sector hard.

Of the total loan of Rs 500 billion, seven per cent is in housing sector, according to the central bank’s figures. “Even if the housing prices drop to half, there will not be repayment problem.”