August 29: Banks have started competition among themselves especially over the long-term fixed deposit schemes. The failure of banks to attract deposits due to various reasons prompted them to introduce fixed-deposit scheme that would give the customers returns of 10 times the amount deposited initially.

Bank deposits are declining due to liquidity crisis in the banking system. In such a situation, the bank have introduced plans for a period of 21 years to attract deposits from the general public by promising returns  up to 10 times the initial deposit. In order to attract depositors in the schemes, banks have added facilities like insurance, credit card, and easy loans in addition to interest.

Initially, NIC Asia Bank announced the "Sarwashrestha 10x Term Plan". After that, banks including Global IME Bank, Civil Bank, Kumari Bank, Sanima Bank, and Nabil Bank also announced similar deposit schemes. Their new scheme promises to pay between two to ten times the deposit amount.

Bankers say that such schemes are suitable for common people who keep long-term deposits in banks and earn interest.

Anupama Khunjeli, former chief executive officer of Mega Bank said, “The long-term deposit scheme introduced by banks is suitable for those who depend on the interest of the bank. This may increase the cost of capital for banks and make loans more expensive.”

However, she argues that such plans will make it easier for banks to manage resources in the long term. Banks complain that it is difficult to manage funds while investing in long-term projects by taking short-term deposits.

So far, NIC Asia announced the Sarwashrestha Muddati Scheme, Civil has announced Dobbar and Tebbar Plus Scheme, Kumari has announced Dhanvridhi Muddati Scheme, Global IME has announced Chakravarti Muddati Scheme, Sanima has announced Bumper Dhamaka Muddati Scheme and Nabil Bank has announces Dhukka Muddati Scheme.

Apart from interest, banks have also introduced facilities like insurance for fixed deposits. NIC Asia's plan offers fatal disease insurance up to Rs 4,000,000, accident insurance up to Rs 4,000,000, and medical treatment insurance up to Rs 4,00,000. Civil Bank says that life insurance up to Rs 1,000,000 and accident insurance up to Rs 1,000,000 will be provided free of cost. Similarly, banks also provided facilities like concessional interest on loans, discounts on loan service charges, free credit cards and other facilities to the customers who opt for fixed deposits.

Share of fixed deposits increases

Due to the focus of banks on collecting fixed deposits from the general public, the share of fixed deposits in banks has increased. According to the data of Nepal Rastra Bank, at the end of the last fiscal year, the share of fixed deposits in banks has reached 55.8 percent of the total deposits of Rs 5158 billion. Until a year ago, the share of fixed deposits in banks was only 47 percent.

Since the interest rate on fixed deposits is higher than general savings, the share of fixed deposits has increased while general savings has decreased. The share of general savings in banks which was 34.2 percent previous year, dropped to 27.6 percent last year.

Banks can give 4 percentage points more interest on fixed deposits than the minimum interest on general savings. According to the directive of NRB, the difference between the maximum and minimum interest rates given in all types of local currency deposit accounts, except call deposits, cannot be made more than 5 percentage points.

In order to eliminate the competition to attract institutional deposits, NRB has introduced a provision in the monetary policy of the current financial year that the maximum interest rate offered on institutional term deposits should be at least 2 percentage points lower than the maximum interest rate offered on term deposits to the general public. Previously, this difference was only 1 percentage point.