Kathmandu, October 11

The meeting of Nepal Bankers’’ Association (NBA), today, decided to bring down the deposit rates after deposit-starved banks started offering high rates to lure depositors.

The slow growth of deposit against rapid credit expansion has pushed the banks into stress to maintain the credit to core capital plus deposit (CCD) ratio. Banks have to maintain CCD ratio at 80 per cent as per the regulatory requirement.

Today’s meeting decided to keep fixed deposit rate at 10 per cent and 10.5 per cent for institutional depositors and individuals, respectively. The new threshold for interest rate on fixed deposit is 0.5 percentage point lower than the rate on fixed deposit schemes agreed between NBA members last fiscal.

NBA is an umbrella network of the chief executives of commercial banks. They started capping interest rate from last fiscal, as banks started facing a situation of credit crunch after a huge imbalance in deposit collection and credit mobilisation. Bankers have claimed that the cap on deposit rates prevents elevation of lending rates, which push borrowers into misery.

Since call deposit rate is also responsible for raising cost of deposit of banks, meeting today also decided to keep rate on call deposits at five to seven per cent. As per Nepal Rastra Bank (NRB)’s rule, banks cannot offer more rate on call deposits than general savings deposit.

The mismatch in deposit collection and credit expansion has hit a few banks in this fiscal as well, according to NRB. Commercial banks have mobilised loans worth Rs 63 billion against deposit collection of Rs 32 billion in the first two months of ongoing fiscal. Total loan mobilisation of commercial banks reached Rs 2,174 billion and deposit collection stood at Rs 2,502 billion till mid-September or till the first two months of this fiscal.

The central bank had asked the banks to submit a plan of deposit collection and credit mobilisation from this fiscal, taking lessons from the experience of the huge mismatch in deposit collection and credit mobilisation in the last fiscal. Authorities from the central bank have said that the situation of credit crunch could recur in this fiscal as well if the banks are not disciplined in deposit collection and credit mobilisation. However, bankers have said that credit has been mobilised looking into the possible increase in the government expenses and increasing remittances.

Requesting anonymity, one of the office bearers of NBA said that the association has capped the deposit rate after obtaining consent from the central bank and NRB has also asked the association to curb lending rates.

NRB officials, however, have said that the situation in which the banks themselves decide the rate is a move towards ‘financial repression’ and the central bank will take stock of the current situation through effective review of the banks’ plans on deposit and credit mobilisation and take action against those that do not stick to their plan.