February 14: The private sector has protested against the increase in interest rates on deposits and loans by banks and financial institutions. Private sector organizations such as the Federation of Nepalese Chambers of Commerce and Industry (FNCCI), the Confederation of Nepalese Industries (CNI), and the Nepal Chamber of Commerce (NCC) have strongly protested the hike in  interest rates and have demanded that the rates be brought down to previous level.

Commercial banks, development banks, and finance companies have raised interest rates with effect from Sunday. The private sector has objected that the interest rate on loans gets increased only after the banks increase the interest rate on deposits intending to increase deposits.

The private sector has demanded immediate reconsideration of interest rates. The private sector organizations say the rise in interest rates has hit the industrial sector hard at a time when it has just begun to recover from the effects of the Covid-19 pandemic.

The FNCCI issued a statement on Friday demanding postponement of the decision of the Nepal Bankers Association to raise the interest rates. The CNI and the NCC have also objected to the interest rate hike after banks and financial institutions published notice on Saturday stating that the interest rates will be increased from February 13.

"If the interest rates on deposits continue to rise every quarter, it will not be possible to do business in the country," the statement said. The FNCCI has said that the country will not be able to estimate business costs while the interest rates remain volatile.

The CNI has said that the rise in interest rates has increased the risk to the economy. 

The confederation said that the increase in interest rates would put the economy at greater risk at a time when the government, the Nepal Rastra Bank, and the private sector were trying to resolve the existing problems of the economy. The confederation has suggested that a policy be introduced to change interest rates on a quarterly basis rather than monthly basis.

The NCC said that raising interest rates would only benefit the banking sector and hurt the industrial sector.

Chairman of Nepal Bankers Association Anil Kumar Upadhyaya, on the other hand, said that the interest rates have been increased as per the demand of the market. "There is still a lack of liquidity in the banking sector. In such a case, we have increased the interest rate so that the deposit will increase,” he said. He says there is no need to panic due to the rise in interest rates. "This is not always the case," he said.

Nepal Rastra Bank's Executive Director and Spokesperson Dr Gunakar Bhatta said that the central bank has not intervened in determining the interest rates. "Interest rates are set by the market. And, the banks have fixed the interest rates within the limits set by the NRB as per the market demand,” he said, adding, “NRB has no hand in this.”

Banking expert Analraj Bhattarai said the decision to raise interest rates was immature. "In the current scenario, it would have been better to raise interest rates and capital charges on loans to unproductive sectors than to raise interest rates on deposits," he said.

Former Governor Dipendra Bahadur Chhetri, on the other hand, welcomed the decision to increase the interest rates. "Interest rates are a more effective factor in managing financial resources than using other financial tools. At a time when there is lack of liquidity in the market, there is no alternative but to raise interest rates,” he said. He said that the flow of credit to unproductive sectors should also be discouraged.