Banks to cut lending rates only next month

Kathmandu, April 17

Banks will slash interest rates on loans only next month though they have already brought down interest rates on deposits by one percentage point in line with the request of the government.

After Nepal Rastra Bank recently reduced the interest rate by a percentage point, Nepal Bankers’ Association  — the umbrella body representing 27 commercial banks of the country — last week decided to cut interest on deposit by one percentage point with effect from April 13.

However, the interest rate on lending, which is the major concern of businesses and the public, is yet to be slashed despite the business community, and even the Finance Minister Yubaraj Khatiwada, urging banks to do so.

In a meeting with the private sector yesterday, Khatiwada urged bankers to bring down interest rate on lending in line with slashed interest rate on deposits.

As businesses across the country are completely shut and are finding it difficult to clear bank dues, they have been seeking cut in interest rate on loans.

However, bankers have said that interest rate on lending will come down from mid-May, stating that banks started revising lending rates after April 13 on the basis of the base rate of the month ending April 12.

“As per NRB directive, banks are required to revise loan rates every quarter and the next revision of lending rates of Baisakh (beginning April 13) should take place in Shrawan (mid-July). However, banks have decided to revise lending rates in Jestha (mid-May) itself to provide immediate relief to borrowers,” said Bhuwan Dahal, president of NBA.

Bankers said revision in lending rates was directly linked to the base rate of the previous month, which means that loan rate in Baisakh is revised automatically in line with changes in base rate of Chaitra  (month ending April 12). “This rule has put an end to the previous regime of unilateral rate increase by banks,” said Dahal.

Dahal, who is also the chief executive officer of Sanima Bank, said NRB’s decision to reduce policy rates in Chaitra has encouraged banks to reduce deposit and lending rates.

“For banks to reduce lending rate in the beginning of Baisakh, NRB should have scrapped the current system linking lending rate with the base rate,” said Dahal, adding that the central bank should also allow banks to increase lending rate on the day of increasing deposit rates.

NBA President Dahal added that banks would support highly-affected sectors with favourable interest rate.

A few days back, the Federation of Nepalese Chambers of Commerce and Industry had urged the central bank to bring down the interest rate on loans by three percentage points. It had suggested that the interest rate be brought down on all types of loans for businesses amid the ongoing crisis caused by the coronavirus pandemic and help them revive their businesses.

Supportive measures elsewhere

  • The Reserve Bank of India unexpectedly cut its key deposit rate on Friday, for the second time in three weeks, to discourage banks from parking idle funds with it and spur lending instead, to revive a flagging economy amid the coronavirus lockdown
  • The RBI cut its reverse repo rate by 25 basis points (bps) to 3.75 per cent with immediate effect, Governor Shaktikanta Das said in a video conference. The rate had already been cut by 90 bps on March 27
  • The RBI also announced another round of targeted long-term repo operations and other regulatory measures for banks. The new round of up to INR 500 billion will be provided to banks as long as they invest these funds in investment grade bonds, commercial paper and non-convertible debentures of small, mid-size and large non-bank finance companies
  • The British government has removed the cap on one of its coronavirus loan guarantee scheme so that all companies with annual revenue of more than £45 million ($56 million) can access support if they were forced to shut operations or were otherwise hurt by the lockdown
  • Under the British government scheme, which provides £330 billion of support in total, the government has pledged to give banks an 80 per cent guarantee on the loans. Companies with sales of between £45 million and £250 million can apply for £25 million of financing while those with revenue of more than £250 million can draw on £50 million
  • China will step up macroeconomic policies to offset the impact of the coronavirus pandemic as its economy faces unprecedented challenges, the ruling Communist Party’s politburo said on Friday. — Agencies

A version of this article appears in e-paper on April 18, 2020, of The Himalayan Times.