Deposit interest rates agreement revoked, banks to set interest rates themselves

KATHMANDU: The Nepal Bankers’ Association (NBA) has made the decision to revoke the agreement on deposit interest rates.

The cartel-like arrangement, made in the name of a consensus on Thursday morning by the consortium of banks, has been scrapped as the banks themselves will now determine the interest rates, as informed by Sunil K.C., the president of the NBA.

Starting from the July 17, banks will have the authority to set the interest rates on deposits according to their own preferences. Despite the revocation of the consensus agreement, as per the directive of the Central Bank, banks can still reduce or increase the interest rates on deposits.

The provision to increase or decrease the maximum interest rate within 10 percent of the personal deposit term, which was already in effect, has been maintained by the Central Bank.

Currently, all commercial banks can set interest rates on personal deposit terms up to a maximum of 9.99 percent, which falls within the 10 percent limit of the average interest rate of 9.99 percent.

Even though the consensus on deposit interest rates has been abolished, banks will now have the responsibility to determine the interest rates by conducting market analysis, rather than engaging in cartelization, as stated by the Nepal Bankers’ Association.

In this situation, with approximately 1 trillion liquidity and around 400 billion investment funds, if the demand for immediate loans does not increase, the banks can reduce the interest rates on deposits.

However, even though the liquidity in the local level’s reserve fund is calculated as 80 percent of the total deposit, it will still have no impact on the analysis conducted by banks, as stated by a banker.

As of July 11, when the total deposits of banks reached 57.36 billion rupees, the ratio of average loan deposits (CD ratio) had reached 81.69 percent.