October 20: The rise in interest rates on loans flowing from banks and financial institutions has resulted in dispute between bankers and businessmen. Businessmen staged a protest against the rising interest rate by closing the market and submitting a formal memorandum to the concerned authorities.

However, the bankers say that there is no possibility of lowering the interest rate immediately due to the market conditions.

The market of Birendranagar was closed last Friday on the call of the Surkhet Chamber of Commerce and Industry to protest against the hike in interest rates.

They have formed a joint struggle committee and announced further protest programmes. In the center as well, commercial organizations such as the Federation of Nepalese Chamber of Commerce and Industry (FNCCI), Nepal Chamber of Commerce (NCC), and Hotel Association of Nepal (HAN) have formally opposed the spiraling interest rates.

Anil Kumar Upadhyay, chairman of the Nepal Bankers Association and Chief Executive Officer of the Agriculture Development Bank, said that the capital cost of banks has increased due to lack of liquidity, and the interest rates of loans have become expensive. 

"In the current situation, the cost of banks has increased by 10 per cent," he said, "Therefore, it is natural for the interest rate to increase." 

Banks have fixed the interest rate according to the provisions of Nepal Rastra Bank. Upadhyay claimed that there is no possibility of reducing the interest rates on loans.

Banks fix the interest on loan by adding a certain per cent premium to their base rate which is maintained every quarter. In the case of old borrowers, even if the premium does not change, the interest rate of the loan increases when the base rate increases.

In the first quarter of the current fiscal year (FY), the interest rate on loans has become expensive due to the increase in the base rate of banks. According to the reports published by the banks, the average base rate of commercial banks has reached about 10 per cent by mid-October. As banks add up to 7 percentage points as premium to the base rate, it seems that the interest rate of bank loans will reach up to 17 percent. However, the base rate of most of the banks have exceeded 10 percent. Because of this, the interest rate of the loan has become more expensive.

Banks, which have been keeping the interest rates on deposits stable for six months through the umbrella organization, increased them by 10 per cent from mid-September. Although the Ministry of Finance tried to intervene, an expert committee formed by the ministry suggested the government not to meddle with affairs looked after by the central bank.