April 30: The private sector has been meeting the prime minister, finance minister and the governor of Nepal Rastra Bank (NRB) demanding that the interest rate on loans be limited to a single digit. Commercial banks have reduced the interest on deposits to a single digit since this the s tart of the Nepali new year. However, the demand for entrepreneurs has not yet been met.

The private sector has been meeting the prime minister, finance minister and the governor of Nepal Rastra Bank and asking them to limit the interest rate on loans to a single digit. Nepal Bankers Association has reduced the interest rate on fixed deposits to 9.99 per cent. Earlier it was up to 12 per cent. With this decision of the bankers, there is no possibility that the interest on loans will drop to a single digit.

The private sector argues that the interest rate on loans should be reduced even if the interest rate on deposits is low for the sake of the business environment. Bankers claim that very low interest in savings will cause more problems in the economy.

Anil Kumar Agarwal, president of the Birgunj Chamber of Commerce and Industry, said that the interest on loans which was 7 per cent in the past, has now doubled. “Industrial business has shrunk to 25 per cent. If the government does not take effective measures to reduce the interest rate immediately, the day will not be far when industries will crash," he warned.

The Nepal Bankers Association decided to reduce interest on savings following Prime Minister Pushpa Kamal Dahal and Finance Minister Dr Prakash Sharan Mahat's statement regarding interest rate reduction. 

Rohini Acharya, President of Birgunj Bankers Association, said that it will take time to see the effect of this decision of the Bankers’ Association, and the results will be visible by the end of the current quarter.

Acharya said that since the base rate of commercial banks is between 9.5 and 11 per cent, there is no possibility that the interest on loans will drop to a single digits in the current fiscal year. According to Acharya, if the average base rate drops to 10 per cent in this quarter, then the interest on loans may be around 12 per cent in the coming year.

Agarwal argued that interest should not be more than 1 per cent on 'call deposits' and 4 per cent on other savings to solve the problems currently seen in the industrial and commercial sectors. According to him, the interest rate of loans can be limited to a single digit by making a provision that banks cannot add more than a 2 per cent premium.

The general secretary of the association, Ashish Lath, also said that until the premium is controlled, the interest on loans cannot be reduced to a single digit.

Banks have increased the premium from 0.5 per cent to 5 per cent due to a lack of liquidity, said Lath.

Nepal Rastra Bank has said that the premium can be charged up to an average of 4 per cent. Businessmen have been demanding that a limit of 2 per cent should be set.

“Legally, businesses cannot make more than 20 per cent profit in any business. On this basis too, the premium should be limited to 2 per cent,'' Agarwal shared.

Due to the increasing interest rate, the industrialist complains that they cannot make their product competitive. “The cost of capital is in double digits. Human resource expenditure is also uncontrolled and unorganized. This is weakening the overall capacity of the economy," said Madhav Rajpal, vice president of the association.

Likewise, Agarwal shared there is pressure on liquidity because the government did not spend the capital budget, and this has been affecting the interest rates.

“The government should increase its spending capacity. Due to the suspension of payment of billions of rupees by the builders, liquidity has come under pressure, he said.