Deposit interest rates at banks and financial institutions fell by a modest percentage in Jestha due to long-standing excess liquidity and the failure to increase credit demand as expected.
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The decline in interest rates in banks and financial institutions has continued in Jestha. The reason for the decline in the amount of credit available for a long time (excess liquidity) and the failure to increase the demand for credit as expected is that the average interest rate on deposits in banks and financial institutions has decreased by a normal percentage point in Jestha.
Banks and financial institutions have stated that as the interest rate on deposits has decreased, the base rate (the basis for determining the interest rate on loans) has also decreased automatically.
The monthly data published by Nepal Rastra Bank also shows that the interest rate on loans has continued to decrease along with deposits. Accordingly, the average interest rate on loans of commercial banks in Chaitra is 6.77 percent. This is the lowest ever. The average interest rate on commercial banks in Falgun was 6.90 percent. In Chaitra, it has fallen even lower than in Falgun.
Commercial banks have reduced the average deposit interest rates published by them for Jestha by a normal rate. According to the interest rates published by commercial banks, the average deposit interest rate in Jestha has decreased slightly compared to Baisakh. Accordingly, the average maximum interest rate on ordinary savings for Jestha is 3.115 percent. In Baisakh, such interest rate was 3.181 percent. In Jestha, the maximum interest rate on one-year individual deposits of banks is 4.343 percent. In Baisakh, such interest rate was 4.395 percent.
For Jestha, 4 of 7 banks have reduced the interest rate on ordinary deposits. One bank has increased the interest rate on both ordinary and fixed deposits. But 15 banks have kept the interest rate on ordinary and 12 banks have kept the interest rate on fixed deposits constant. Siddhartha Bank has increased the interest rate. Siddhartha has increased the interest rate from 4 percent to 4.05 percent.
The highest interest rate on deposits in Jestha is from Rastriya Banijya Bank. This bank is going to give 4.75 percent. Kumari Bank is offering the lowest interest rate of only 3.96 percent. With the interest rate on deposits decreasing in this way, the interest rate (weighted average interest rate) paid by the general public when taking loans from banks and financial institutions has dropped to an average of 6.77 percent in Chaitra. This is the lowest ever. Such an interest rate had reached a maximum of 13.03 percent in the fiscal year 2079/80, which has been continuously decreasing in recent years. Rastra Bank officials and financial sector experts also claim that the interest rate on loans is at an all-time low.
The interest rates on loans under various headings in banks are different. The average interest rate for all of them is 6.90 percent. But it does not mean that the borrower gets the same rate when taking a loan from the bank. Different interest rates should be paid according to the bank or even within the same bank according to the title. Based on the data available so far, the weighted average interest rate on loans is currently at its lowest point in history, according to officials of the National Bank. Although the average interest rate on deposits in a given year is lower than now, the weighted average interest rate on loans up to last Chaitra has fallen to its lowest point, they say.
When the interest rate on loans is low, there is a possibility that the income of depositors will decrease and investment will go to unproductive sectors. When the interest rate on loans decreases, the interest rate on deposits also automatically decreases. Although this is good for the borrower, there is a risk of capital flight. The real interest rate is positive even though the inflation rate is low at present. Experts say that there is a risk of capital flight when loans do not increase as expected and the interest rate on deposits is also low. ‘Even when the interest rate in India is slightly higher than in Nepal, capital escapes through traders in the border areas. Interest rates are even lower in Nepal now. Therefore, capital flight is not a new thing,’ said an economist.
The National Bank has been calculating the average interest rate on deposits and loans since 2069 (2012). According to a Rastra Bank official, there was no such low interest rate before 2069. In Asad 2069, the weighted average interest rate on loans was 12.40 percent. In Asad 2077/78, the average interest rate on loans in banks and financial institutions was 8.43 percent. Since then, the interest rate on loans has been rising.
In Falgun 2079/80, the average interest rate on loans had reached 13.03 percent. Since then, the interest rate has started to decrease again. The interest rate that started decreasing from that point was 9.93 percent in Asad 2081. Last Asad, the average interest rate on loans had decreased to 7.85 percent.
