October 8: Nepal Rastra Bank (NRB) will be clarifying about the fixed interest rates through the quarterly review of monetary policy even though it has allowed the Banks and Financial Institutions (BFIs) to determine the fixed interest rates on personal term loans, including home and auto loan by the end of Ashoj (mid-October).

The central bank after adopting a fixed interest rate policy, had directed the BFIs to fix their interest rates on personal loans by mid-October due to the unstable fluctuations on the rates of interest. However, Nepal Bankers' Association had recently suggested Governor Maha Prasad Adhikari that this may not be practical. However, Nepal Rastra Bank has stated that the suggestions could be addressed through the monetary policy of the current fiscal year.

Since the maturity of home loans are up to 25-30 years, the Bankers’ Association believes that it will not be practical to fix the interest rates for such a long term. Anil Sharma, executive director of the Bankers' Association, suggests that it would be better to fix the interest rates on personal loans for only 5 years.

“Rastra Bank’s directive on fixing the interest rates seems to have made things difficult for the banks. We suggest fixing the interest rates for 5 years at a time instead of fixing it for a very long term,” he told New Business Age, adding, “We are expecting clear arrangements to be made by the central bank in order to make the banks more comfortable.”

He firmly believes that fixing the interest rate for a long time may be turn out to be more expensive for the customers.

According to a source from the Governor's Office, the suggestions received from the Association cannot be addressed immediately. However, it will be brought into discussion during the first quarterly review of the monetary policy. The source added that the complaints and feedbacks received so far will also be included and discussed on the basis of their importance. 

“However, the banks will have to continue implementing the directives given by the central bank so far. The central bank will take care of any problems that arises during the implementation,” the source said.

Dr Gunakar Bhatt, the spokesperson of Nepal Rastra Bank, stresses on the need to introduce the fixed interest rates from the month of Kartik (after mid-October). He says that decisions haven’t yet been made on the suggestions received from the association. The central bank came up with the fixed interest rates policy to protect the customers from repetitive increase in the interest rates. However, the implementation of this policy is likely to be weak since the bankers are dissatisfied with the system.

Nepal Rastra Bank had issued the Unified Directive, 2077 on September 8, directing the BFIs to maintain a fixed interest rate on personal term loans that have a repayment period of more than one year. Since the bankers had demanded more time to study the issue before fixing their interest rates, the central bank gave them an extension to implement the fixed interest rate policy till the end of Ashoj (mid-October). The Bankers' Association however, wants a clear arrangement on the policy despite the extension given by Nepal Rastra Bank.

Apart from the fixed interest rate, the association has also drawn the attention towards the central bank's directive on not charging interbank fee in ATMS, priority sector lending limit, liquidity and loan advance payment through their letter.

According to the association's executive director Sharma, they have also suggested loosening the lending limits on priority sectors such as agriculture, energy, deprived group, and tourism because the banks are not in a position to reach the prescribed limits. The central bank has made it mandatory for banks to disburse 25 percent of their total credit to the priority sector by lending 10 percent to the agriculture sector, 15 percent to the energy and tourism sector and 5 percent to the deprived sector.

"Banks have not been able to meet the limits set in some priority sectors. The effects of COVID-19 has made things more difficult. This is why we have requested to not make the priority sector lending mandatory," he said.

Similarly, suggestions have also been made to review the loan advance payment fees as this has led to an unhealthy competition between BFIs in the market.