Kathmandu, March 9

Nepal Bankers’ Association (NBA) — the apex body of commercial banks in the country — today revoked all types of inter-banking transactions with NIC Asia Bank, alleging that the bank jacked up the interest rate on deposits against the common understanding among commercial banks, which has posed a systemic risk on the entire banking system.

The NBA’s decision comes on the heels of NIC Asia Bank’s recent move to offer 10 per cent interest on normal savings and 12 per cent interest on one-year fixed deposits to its customers.

The move was in breach of the recent commitment made by all commercial banks, including NIC Asia, to limit the interest rate on normal savings and fixed deposits to eight per cent and 11 per cent, respectively, according to officials at NBA.

“We were compelled to take this decision today as NIC Asia Bank has not only breached our common understanding, but has also been engaging in various ‘unprofessional’ activities that only focus on its sole growth while totally disregarding its effects on the entire banking system,” said Gyanendra Prasad Dhungana, president of NBA.

Adding to NIC Asia’s woes, its chief executive, Laxman Risal, resigned from his post yesterday. Reportedly, Risal had strongly objected to NIC Asia’s board of directors’ decision to hike up the interest rate against the mutual understanding among NBA members.

NBA has called a meeting for Sunday among the remaining 27 commercial banks to discuss the ‘way forward’.

Meanwhile, NIC Asia Bank has said that fixing a cap on interest rates on deposits amounted to nothing less than being a ‘cartel’. Stating that last week’s NBA meeting had only ‘discussed’ about the interest rates and that NIC Asia had not made any commitment to comply with the ‘proposed interest rate cap’, the bank officials said that individual banks should be allowed to determine the interest rates as per the demand-supply theory in the market.

“Moreover, we are not obliged to comply with NBA’s decisions. We have exercised our own interest rate on deposits to break the ‘syndicate’ that NBA is attempting to introduce in the banking sector of the country,” Roshan Kumar Neupane, assistant chief executive officer of NIC Asia Bank, told The Himalayan Times.

He further said that only the central bank — Nepal Rastra Bank (NRB) — could give an impartial verdict to whether NIC Asia had done anything wrong.

Neupane further said that all decisions that NIC Asia Bank takes primarily intends to facilitate its one million depositors, who have parked more than Rs 124 billion in savings with the bank.

However, the central bank seems in no mood of getting in between this dispute.

“It is basically a conflict between NIC Asia and NBA, and is not really related to the central bank. However, we shall intervene if required after investigating the matter properly,” said NRB Spokesperson Narayan Prasad Poudel.