The sharp decline in interest rates on savings has had a direct impact on fixed deposits. As interest rates continue to fall, the interest rates on fixed deposits are only slightly different from those on ordinary savings, which has reduced the enthusiasm of citizens to keep money in fixed deposits.

This is confirmed by the decrease in the share of term deposits in total deposits and the increase in ordinary savings in the same period of the current fiscal year compared to Kartik of the previous fiscal year. 

According to Nepal Rastra Bank, the total deposits of banks and financial institutions as of last Kartik were 7.486 trillion rupees. Of this, the share of current accounts is 6 percent, savings accounts 39.2 percent, and time deposits 45.6 percent. While the share of current accounts in total deposits in the same period of last year is 5.3 percent, savings accounts 32.8 percent, and time deposits 54.5 percent. This shows that the share of deposits in current and savings accounts has increased over a period of one year, while the share in time deposits has decreased. 

Time deposits have decreased by about 10 percentage points in one year. This means that savers do not want to keep their savings in time deposits in time deposits again after the maturity period is completed, so the share of time deposits in total deposits has decreased and savings has increased, according to bankers. ‘Since the interest rates on savings and fixed deposits are not much different, it seems that citizens are keeping their money in ordinary deposits,’ said Santosh Koirala, President of the Nepal Bankers Association. ‘Savers are in a wait-and-see mode to see if the interest rates will increase.’

The share of institutional deposits in the total deposits in banks and financial institutions as of Kartik 2082 is 35.5 percent. In mid-Kartik 2081, the share of such deposits was 35.8 percent. Banks and financial institutions have added an additional Rs 222.38 billion in deposits. In the first four months of last year, deposits were added by Rs 149.84 billion. ‘On an annualized basis, deposits in banks and financial institutions have increased by 13.4 percent in mid-Kartik 2082,’ the report states. 

In mid-November 2082, after banks started offering the same interest rates on ordinary savings and term deposits, the share of term deposits in total savings has decreased while that of ordinary savings has increased as savers do not want to keep their matured term deposits in term deposits. 

According to the National Bank, in the last month of November, the average base rate of commercial banks was 5.44 percent, that of development banks was 7.74 percent, and that of finance companies was 8.39 percent. All these interest rates have decreased compared to November 2081. In November 2082, the weighted average interest rate of commercial bank deposits was 3.74 percent, that of development banks was 4.32 percent, and that of finance companies was 5.47 percent. In November 2081, the weighted average interest rate of commercial bank deposits was 5.01 percent, that of development banks was 5.83 percent, and that of finance companies was 7.18 percent.

In Kartik 2082, the weighted average interest rate of commercial banks' loans was 7.38 percent, development banks' 8.66 percent, and finance companies' 10.05 percent. In Kartik 2081, the weighted average interest rate of commercial banks' loans was 9.07 percent, development banks' 10.43 percent, and finance companies' 11.70 percent, according to the monthly report of the National Bank.

Experts say that since interest rates are probably at their lowest level so far, the government and the private sector have a good opportunity to increase investment. In a situation where interest rates are very low, depositors may be discouraged, capital may flee, and the real interest rate may become negative. They say that attention should be paid to this. At such a time, they suggest that the government should also increase investment in the development and construction sectors, including infrastructure.

Instead of giving it to public institutions, they can raise money from the market by issuing bonds themselves. Thus, the government will not be burdened with debt, nor will there be any procedural hassles like in the government, they said. The Rastra Bank is withdrawing money through various monetary instruments to manage the accumulated loanable amount (excess liquidity) in the financial system. The Rastra Bank last sent money to the market through repo on 23 Chaitra 2079. Since then, it has been withdrawing money from the market every Sunday and Wednesday as needed.

In the first quarter of the current fiscal year, banks and financial institutions have disbursed loans of Rs 65.04 billion. Compared to last Ashar, the loan flow has increased by 1.2 percent in the last four months. An additional Rs 128.47 billion was disbursed in the last four months of the last fiscal year. According to the Rastra Bank, the loan disbursed by banks and financial institutions to the private sector has increased by 6.9 percent on an annualized basis as of mid-Kartik 2082. 

Of the loans disbursed to the private sector in the last four months, the loan flow of commercial banks and finance companies has increased by 1.3 percent. The report states that the loan flow of development banks has decreased by 0.1 percent during the same period. ‘As of mid-Kartik 2082, 15 percent of the loans invested by banks and financial institutions were secured by current assets (agricultural and non-agricultural goods) and 64.4 percent by real estate collateral,’ the report of the National Bank states. ‘As of mid-Kartik 2081, the share of loans secured by such collateral was 13.5 and 66 percent, respectively.’

Nepal Bankers Association President Koirala says that the demand for loans has not improved in the first four months of the current fiscal year. ‘The situation is very disappointing. Although some loans have increased in share collateral, the overall loan has not increased,’ he said. ‘Only deposits have piled up. There is no demand for loans. Banking activity is very slow.’ 

In the last four months, among the loans invested by banks and financial institutions, loans to the construction sector increased by 3.2 percent, loans to the transportation, communication and public services sectors by 2.9 percent, loans to the industrial production sector by 1.9 percent, loans to the consumer sector by 1.7 percent, loans to the wholesale and retail trade sector by 0.4 percent, and loans to the service industry sector by 0.1 percent. However, during that period, loans to the agricultural sector decreased by 2.6 percent, and loans to the finance, insurance and real estate sectors decreased by 2.5 percent, the report states.