KATHMANDU, February 12: Banks are raising the interest rate on deposits citing the tight liquidity position in the country’s banking system.
The Nepal Bankers Association (NBA) at a meeting on Friday decided to raise the interest rate on deposits by one percent. In the revised rate, the apex organization maintained the 11.03% cap on fixed deposits for individual customers.
The upper limit of the interest rate for institutional depositors has been set at 10.03% per annum. Similarly, the interest rate on savings accounts has been set at 5% lower than the interest rate on time deposits while the interest rate on demand deposits is maintained at 3.015% by year.
According to a banker, the banks are seeking to raise the interest rate following pressure from the Nepal Rastra Bank (NRB) to do so. Amid a growing shortage of loanable funds despite the implementation of various measures by the NRB, the central bank reportedly asked banks to raise interest rates to attract more deposits.
According to NRB records, the base interest rate on loans reached 8.42% in mid-January. Similarly, the average interest rate on deposits reached 6.37% per year.
Following a rise in interest rates on deposits, banks are expected to raise the lending rate soon. Recently, banks raised their base interest rate on loans by more than two percentage points starting in mid-January, citing increased spending on deposit interest.