Nepal | September 23, 2019

Too costly to borrow


While banks seem bent on hiking interest rate on lending, the central bank has remained a mute spectator

When people were busy celebrating Dashain festival, Nepal Bankers’ Association (NBA), an umbrella organisation of “A” class private banks, was busy serving their institutional interest. Just one week before the Dashain vacation, the NBA on October 10 decided to offer up to 10 to 10.5 per cent interest rate on deposit. This decision has received public criticism for their “cartel-like” system. This is not the first time the bankers have revised interest rate on deposits. They had taken a similar step earlier in the past as well despite written warnings from Nepal Rastra Bank, the central bank. Experts opine that fixing a cap of interest rate on institutional or individual deposits will mean they also will be putting a cap on lending rate, creating a coercive condition on borrowers who will have very little choice to bargain with the banks while taking loans. The NBA decision will also encourage cooperatives and other financial institutions whose interest rate on lending is already very high. The high interest rate on lending will spoil the investment climate in the productive and service sectors. Interest rate on lending in Nepal is one of the highest among the South Asian countries.

The central bank has allowed spread rate of around five per cent to the banks and financial institutions. If this becomes a norm, a borrower will have to pay up to 15 per cent interest rate on borrowing if 10 per cent interest rate on deposit is fixed by the banks. It will not create environment for investment in the productive sectors. People familiar with the financial health of private banks believe the NBA decided to put the cap on deposit after they started facing shortage of deposit. They also allege that the central bank has also served their institutional interests by not taking any redress. Per a hypothesis, capping interest rate on deposit will mean stabilising the interest rate on lending. However, the lending rate has been rising all the time in every fiscal. Despite the central bank’s repeated requests to the bankers to submit a plan to end mismatch between deposit collection and credit mobilisation they have been reluctant to put a cap on the lending rate, which is one of the determining factors for rapid economic growth.

Lending rate must be predictable for economic growth. If banks can put a cap on deposit rate, why cannot they do the same on lending rate at a certain level? This is the main issue the central bank must tackle to create climate for investment. In order to address the problem of unpredictable lending rate, the government, which is the biggest investor in the public sector, must inject enough money on capital expenditure which ultimately helps create more deposits in banks and more jobs within the country. Rapid growth of exports, steady inflow of remittances through banking channel and healthy growth of tourism industry are other preconditions in reducing the existing high interest rate on lending. Encouraging foreign direct investment in the productive sectors is another way of stabilising lending rate at predictable level. Interest rates on deposit and lending must be brought to the lowest possible level so that investments can be made in the productive sectors. The government has the biggest role to play in bringing the lending rate down.

Waste and awareness

Waste generation rates are rising globally. Kathmandu, the capital city, is no exception. The Kathmandu Valley generates around 800 tonnes of solid waste every day. But waste management in the Valley remains a huge challenge. Proper management of waste is essential for building sustainable and livable cities. Effective waste management no doubt is expensive, but there are some issues which can be addressed at the household level.

There seems to be lack of awareness among the general public about waste management. Around 60 per cent of the solid waste generated from the Valley  can be composted. And there are recyclable items. However, unless the garbage is segregated at the household level, effective management is not possible. There is no doubt that the concerned authorities, including the Kathmandu Metropolitan City, have massively failed in properly managing the waste, but efforts at people’s level is also a must to help in waste management. The authorities should while step up efforts to manage waste properly, they should also raise awareness among the people about it. Public awareness is key to successful waste management.

A version of this article appears in print on October 23, 2018 of The Himalayan Times.

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