First Business News Portal in English from Nepal
KATHMANDU: Nepal Rastra Bank (NRB) warned banks and financial institutions not to raise interest rates and asked them to roll back their decision to up the interest rate at the earliest.
On Tuesday, NRB hold a meeting with the Nepal Bankers Association (NBA) and other financial institutions and asked them to reduce interest rates on deposits immediately or else face the action.
As liquidity in the financial system is shrinking, banks and financial institutions are lately into unhealthy competition by raising interest rates on deposits. NRB also charged few banks that their announced interest rates on deposits is violating the spread rate policy of the central bank.
NRB had issued a directive in July last year stating that banks and financial institutions should maintain a spread rate of 5 percent on interest rates on savings and term deposits. It had directed banks to make public the interest rate to be implemented in the coming month in the end of the current month.
In addition, the interest rate once made public cannot be changed at least for one month, as per NRB provision. But banks had announced interest rates on deposits before end of due month.
Similarly, the NRB also charged that contrary to NRB’s directive, development banks have not maintained the least difference (spread) rate of 5 percent between the interest rate on savings and on term deposits. Muktinath Development Bank, Sangrila Development Bank, Progressive Finance, and Manjushree Finance had violated the rule.
NRB officials gave clear indications that the NRB will intervene if the banks will not restrain on interest rates.
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