KATMANDU, October 11: Banks are likely to raise interest rates on loans after mid-October, citing the lack of loanable funds available at home, caused by the excessive increase in imports and slow remittances.
According to bankers, the country’s banking system faced a shortage of money supply to provide loans. “The shortage has worsened further as a number of banks have started giving aggressive loans at a time when public treasury spending is slow,” said Narayan Das Manandhar, managing director of Prime Commercial Bank.
In mid-September, national banks set the interest rate at an average of 4.76% while interest on loans was 8.48%. Compared to mid-July this year, interest rates on deposits and loans increased by 0.11 and 0.05 percentage points respectively.
As of last week, Nepal Rastra Bank (NRB) records show that commercial banks had deposits worth Rs 424.90 billion, while they issued loans of Rs 396.10 billion. . In recent weeks, the central bank has injected more than Rs 70 billion into the country’s financial market. However, it failed to resolve the existing problem of cash shortage.
According to bankers, the money market problem started to surface from mid-July, the start of the current fiscal year, mainly due to the NRB’s imposition of a credit-to-deposit ratio rule of 90%. But the situation worsened with soaring imports and weak remittances.
NRB records show that remittances fell 18.1% to Rs 75.96 billion in mid-July and mid-August of this year, compared to an increase of 23.0% at the same period last year. Likewise, merchandise imports increased by 75.7% to reach 150.73 billion rupees, resulting in a large trade deficit of 129.97 billion rupees.