February 15: Cooperatives are under pressure to increase the interest rate after the banks and financial institutions increased their interest rates from mid-February. 

As per the provision of the Cooperatives Act-2074, cooperatives are not allowed to charge more than 14.75 percent interest on loan investment. Cooperative officials are lobbying to increase the limitation as they are unable to raise interest rates on savings due to reference rate. 

As per the decision of the Nepal Bankers' Association, the commercial banks have increased the interest rate to 11.03 percent from February 13. On this basis, development banks and finance companies also increased the interest rate, and now cooperatives are under pressure to increase the interest rate. 

As per the provisions of the Cooperatives Act, a committee under the coordination of the Registrar should fix the reference rate. The committee has representatives from the Ministry of Cooperatives, Ministry of Finance, Nepal Rastra Bank, National Cooperative Development Board, National Cooperative Federation of Nepal, and Cooperative Union. 

Based on the recommendations of the Ministry, Nepal Rastra Bank, National Cooperative Federation and the committee can determine the reference rates of interest. 

Officials of the cooperatives have been pressing for the review of the reference rate fixed for the cooperatives after the interest rates of banks and financial institutions was increased due to lack of liquidity in the banking system in the current fiscal year (FY). For this, a meeting of the reference interest rate committee was held in mid-December. 

At the meeting, the federation had proposed to raise the reference rate to 16.50 percent. However, the meeting was postponed for one week and could not be resumed after the representatives of the Ministry of Finance and Nepal Rastra Bank protested at the meeting saying that there was no basis to increase the interest rate.

Stating that the problem of liquidity in the banks was being solved at that time and there was no need to review the reference rate immediately, the committee did not hold the meeting. Nevertheless, after raising the interest rates of banks since February, the pressure has also increased to increase the interest rate of cooperatives. 

"If the banks had not raised interest rates, there would not have been pressure to increase the interest rates of the cooperatives," said Minraj Kandel, president of the National Cooperatives Federation of Nepal.