Kathmandu, April 30

Commercial banks have started raising interest rates on general savings accounts from merely one per cent earlier to above five per cent as Nepal Rastra Bank through mid-term review of the Monetary Policy has made it mandatory for banks to provide an interest rate on savings that is equal to call deposits.

Banks have started offering higher interests on savings accounts as they have to retain call deposits. Call deposits are deposits of corporate houses, insurance companies and finance companies, among others.

Banks are over reliant on call deposits so they have started offering higher interest rates on savings accounts as they cannot offer different interest rates on savings and call deposits, according to Ratna Raj Bajracharya, chief executive officer of Sunrise Bank. Withdrawal of call deposits from certain banks had been rising as some banks started quoting lucrative interest rates on savings accounts.

Cost of funds of banks has increased significantly as they have been paying higher interest rate on savings accounts, which is similar to that on call deposit accounts. Before NRB introduced the rule, there was a vast difference in interest rates on call deposits and savings accounts. However, after the central bank introduced the mandatory provision, banks have been publishing new rates for savings accounts.

Banks have been offering around 12 per cent interest rate on fixed deposits and around 13 to 15 per cent for institutional deposits. Interest rates on deposits went up substantially since the second quarter of this fiscal due to lack of funds in the market that could have been collected as low interest rate deposits due to slowdown in remittance inflow, low government expenditure and more investment avenues in the country.

Banks have to offer high interest rate on deposits to maintain credit to core capital cum deposit ratio at 80 per cent because credit growth in this fiscal has been continuously surpassing deposit growth over past few months.