Kathmandu, May 13
Following the rise in unhealthy competition among banks to collect deposits from the market, the Nepal Rastra Bank (NRB) has started curbing such banking practices.
The central bank recently issued two circulars that intend to bar banks and financial institutions (BFIs) from collecting deposits haphazardly.
Through these circulars, the NRB has not only prevented BFIs from collecting fixed deposits for less than three months, it has also restricted them from introducing schemes that offer prizes to attract deposits.
These directions are applicable to ‘A’, ‘B’ and ‘C’ class banks and financial institutions.
Owing to lack of loanable funds, a few banks and financial institutions have been launching different schemes to attract deposits, including giving away prizes to the depositors.
Moreover, some banks and financial institutions have even started accepting fixed deposits for a period of just one or two months.
Though banks and financial institutions may be able to increase their deposit portfolio by such means, such schemes are against banking principles, as per Laxmi Prapanna Niraula, spokesperson for NRB.
“Fixed deposits are ‘term deposits’ and should be for a longer term. The practice of accepting such term deposits for short period will leave negative impact on the money market,” said Niraula, adding that collecting fixed deposits for short period will also promote instability in the capital market as well as in the overall financial market of the country.
In regards to the tendency of giving away prizes to lure depositors, Niraula said that deposit collection and loan issuance are inherent banking sector activities and it is unethical to launch schemes by announcing prizes on deposits or loans.
Meanwhile, bankers too have welcomed the aforementioned directions of the central bank and expect that it will be crucial in controlling unfair deposit collections from the market.
“Even if just one bank introduces such prize-related schemes to attract deposits or starts accepting fixed deposits for short term, it can give rise to other unhealthy practices. Moreover, such practices will affect the entire banking sector, including the interest rates,” said Gyanendra Dhungana, president of Nepal Bankers’ Association (NBA).
Moreover, Dhungana mentioned that it was NBA that recommended the central bank to curb such practices in the financial sector.
A version of this article appears in print on May 14, 2019 of The Himalayan Times.