September 16: Banks and financial institutions are preparing to increase the interest rate on deposits from mid-September. The commercial banks, which maintained a constant interest rate since the beginning of the year, have decided to increase it from September 17 as per the gentlemen’s agreement among the members of Nepal Bankers Association.

Since mid-March, commercial banks have been implementing a gentlemen’s agreement to give a maximum interest rate of 11.03 percent for individuals and 10.03 percent for organization on 1-year term deposits.

However, a meeting of the association on Thursday decided not to give continuity to the agreement. This has enabled the banks to set the interest after mid-September as per the instructions of NRB.

The fluctuation in interest rates of commercial banks impacts development banks, financial institutions and cooperatives as well.

NRB issued an instruction last November allowing banks to change the interest rate by 10 percent compared to the previous month.

At the beginning of the last fiscal year, banks that were aggressive in deposit collection due to lack of liquidity. So, NRB intervened when there was an unhealthy competition among banks to attract deposits by raising interest rates.

After the instructions of NRB, the banks have been keeping the interest rate stable through mutual agreement. According to the instructions of NRB, despite a 10 percent increase in March, the banks implemented a gentlemen’s agreement to not increase interest rates in April, May, June, July, and August.

NRB had encouraged the banks to increase the interest rate by increasing the bank rate according to the monetary policy of the current fiscal year. As per the monetary policy, NRB amended the Unified Directive 2078 in the third week of July and allowed the banks to change the interest rate immediately if there is a change in the bank rate and the policy rate. As NRB increased the policy rates, the path for the banks to increase the interest rates immediately was cleared. However, they did not increase the interest in July and also agreed to maintain a stable interest rate till mid-September.