Central Bank urges entrepreneurs to report interest rate violations

KATHMANDU: Governor Mahaprasad Adhikari of the Nepal Rastra Bank is calling for penalties on any bank charging interest rates exceeding 16%, underscoring the imperative for central bank scrutiny.

During his address at the 27th annual day of the Society of Economic Journalists Nepal (SEJON) on Friday, Governor Adhikari disclosed his examination of statements from banks by the central bank, leading to an investigative order for interest refunds, contrary to established regulations.

Highlighting that the central bank had reimbursed over NPR 4.76 billion to entrepreneurs in the last fiscal year, Governor Adhikari encouraged business owners to register complaints with the central bank instead of seeking alternatives to evade interest. He stressed that addressing issues directly with banks, especially while obtaining loans without comprehensive business plans, had given rise to individual predicaments, urging entrepreneurs not to bypass concerns involving the state and the central bank.

Governor Adhikari emphasized the importance of businesses formulating solid business plans prior to securing loans and pointed out that prominent business figures had acquired loans from banks at interest rates 6 to 8 percentage points higher than previous rates. Despite a 10% interest rate, businesses were borrowing at an 8% rate, revealing a discordant state in the market, as noted by Governor Adhikari.

He suggested a recalibration of the business community’s perception, emphasizing that banks and financial institutions are involved in more than just facilitating loans. Governor Adhikari indicated that entrepreneurs continued to benefit from facilities they had utilized over the past three years, even as businesses borrowing at 9% were obtaining amounts surpassing their actual business needs.

Regarding reports of some businesses securing loans at an 18% interest rate, Governor Adhikari recommended presenting such cases to the central bank when banks impose interest rates between 16% and 18%.

He stating that claims of an 18% interest rate return were inaccurate, asserting that the central bank had entrusted the determination of interest rates to the market. The central bank’s intervention on commercial banks’ interest rates, resulting in an additional NPR 4.76 billion returned from these banks last year, has sparked controversy in the market. Critics accuse the central bank of unwarrantedly instigating disorder by reclaiming funds from the market. The pressing question remains: what is the actual reality? The central bank has initiated discussions on micro-management, prompting responses from the private sector.