Banks decide to raise interest rate on deposits by 1 percentage point as liquidity is tight – myRepublica

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KATHMANDU, February 12: Banks are raising interest rates on deposits citing tight liquidity in the country’s banking system.

The Nepal Bankers’ Association (NBA) decided to raise the interest rate on deposits by one percentage point at a meeting on Friday. In the revised rate, the umbrella organization has retained the upper limit of 11.03 percent on fixed-term deposits for individual customers.

The interest rate cap for institutional depositors was set at 10.03 percent per year. Likewise, the interest rate on savings accounts has been set at five percent lower than the interest rate on term deposits, while the interest rate on demand deposits is kept at 3.015 percent per annum.

According to a banker, the banks want to raise the interest rate under pressure from the Nepal Rastra Bank (NRB). Amid the worsening shortage of borrowable funds, although the NRA has taken various measures, the central bank is said to have urged banks to raise interest rates to attract more deposits.

According to NRA records, the base lending rate reached 8.42 percent in mid-January. Likewise, the average interest rate on deposits reached 6.37 percent per year.

After a rise in deposit rates, banks are likely to raise lending rates soon. Banks recently raised their base lending rates by more than two percentage points, effective from mid-January, citing an increase in their spending on interest on deposits.

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