Commercial banks further slash interest rates in Bhadra; Institutional rates drop to 2.75 percent

KATHMANDU: The interest rates offered by Nepal’s commercial banks have dropped further in the Nepali month of Bhadra — a move signaling continued monetary tightening and surplus liquidity in the banking system.

Effective from Bhadra 1, most commercial banks have revised their fixed deposit (FD) rates downward. According to the latest published notices, the average fixed deposit rate for individual accounts has decreased by 0.20 percentage points to 5.58 percent, compared to 5.75 percent in Shrawan.

For institutional deposits — which directly impact cooperatives, social funds, provident funds, insurance companies and corporations — the average rate has fallen by 0.15 percentage points to just 3.96 percent in Bhadra, down from 4.11 percent a month earlier.

Alarmingly, one of the leading international banks, Standard Chartered Bank Nepal, has slashed its institutional deposit rate steeply to as low as 2.75 percent, the lowest in the entire commercial banking industry, signaling how unattractive large institutional deposits have become for banks amid liquidity glut.

Seven Banks Reduce Rates, Others Opt for Status Quo

Out of 20 commercial banks, seven have actively reduced their rates for September (Bhadra), while the remaining 13 banks have kept rates unchanged — though most have already maintained interest rates at historically low levels. The banks that implemented rate cuts this month include:

Agricultural Development Bank: Individual FD down by 0.20% to 5.20%; institutional down by a massive 0.65% to 2.85%.

Everest Bank: Reduced individual FD by 0.50% to 5.75%; institutional to 4.75%.

Kumari Bank: Individual FD cut by 0.40% to 5.21%.

Nepal SBI Bank: Individual FD by 0.10% to 5.25%; institutional to 4.25%.

Standard Chartered Bank: Largest individual cut by 1.10% to 5.13%; institutional down by 0.25% to 2.75% — the lowest among all banks.

Siddhartha Bank: Individual FD down by 0.30% to 5.50%; institutional down 0.75% to 4.00%.

Sanima Bank: Individual FD down by 0.43% to 5.75%; institutional down by 0.25% to 3.75%.

The remaining banks — including Nepal Bank, Nabil Bank, Rastriya Banijya Bank, Global IME Bank, NIC Asia, Himalayan Bank, Machhapuchchhre Bank, Prime Bank, NMB Bank, Prabhu Bank, Citizens Bank, Everest Bank (already updated), and NIMB Mega Bank — have kept their interest rates unchanged for the month.

Depositors Hit Hard, Lending Likely to Stay Expensive

With the reduction in deposit rates, savers and fixed deposit investors are receiving lower returns, while borrowers are still paying high lending rates — a gap that raises questions about the effectiveness of the banking system’s transmission of monetary policy benefits to the real economy.

Experts say that although the interest rate cuts are intended to reduce the banking sector’s cost of funds and stimulate lending to the private sector, the reduction has not been reflected on the lending side. Businesses and SMEs continue to complain about expensive loans, while small savers are receiving diminishing returns on their deposits amid rising inflation.

Competitive Pressure and Liquidity Surplus

Most banks are flush with liquidity, with deposits increasing faster than credit disbursement. This imbalance has forced banks to reduce deposit rates in order to manage their cost of funds. Institutional deposit rates are now hovering around 3–4% in most banks — indicating minimal appetite among banks to attract large corporate deposits.

As the banking industry enters the festive season, the interest rate dynamics will remain under scrutiny. The latest adjustment may also influence the average base rate in the coming quarters, eventually affecting lending rates if pressure continues.