October 23: The average interest on loans of commercial banks has exceeded 12 percent amid protests from industrialists and businessmen. Due to the tight monetary policy implemented by Nepal Rastra Bank (NRB) and lack of liquidity in the market, the interest on loans has increased with the rise  in operating cost of the banks.

According to NRB, the average interest rate of bank loans has reached 12.06 percent in August which was 8.57 percent last year. A report published by NRB on Friday mentions that the base rate of banks reached 10.01 percent by mid-September this year, which was 6.89 percent last year.

The industrialists and businessmen have started street protests since last week stating that the banks increased the interest rate on loans excessively. The relationship between industrialists and banks has become tense regarding the issue of interest rates.

According to NRB, the average interest rate of bank deposits in August also increased from 4.92 percent to 7.81 percent this year.

Due to lack of liquidity, banks increased the interest on savings to increase deposit collection, which in turn increased the interest on loans.

Banks fix the loan interest rate by adding a certain percentage premium to the base rate. Due to this, when the base rate increases, the interest rate of loan also increases. Banks are allowed to adjust the interest rate based on the quarterly base rate.

Despite the increase in the interest rate, there has been no improvement in deposit collection. According to NRB, the total deposits of bank and financial institution decreased by 0.9 percent, while lending increased by 0.55 percent as of mid-September.