Commercial banks recording tepid deposit collection despite raising interest rate on deposits

KATHMANDU: Although banks and financial institutions have increased interest rates on deposits citing liquidity crisis, deposit collection has not increased as expected.

Although banks have raised interest rates on deposits to 11.03 percent since mid-February, the deposits of commercial banks have increased by only Rs 1 billion. According to the Nepal Bankers’ Association, the total deposits of commercial banks was Rs 4311 billion as of mid-February which increased to Rs 4312 billion on February 18.

Despite opposition by some bankers that increasing interest rates would not increase deposits, the association had decided to raise interest rates in line with the interest rate limit set by the central bank.

With the weak growth rate of deposit, credit expansion of banks has also started shrinking. According to the association, the credit of banks has increased by only Rs 4 billion in February. Commercial banks, which have been extending loans of Rs 10 billion in average in a week, started reducing credit flow since mid-December.

Deposit collection of banks was Rs 110 billion as of mid-January this year while the credit flow was Rs 434 billion during the review period.