June 14: Although the liquidity has eased in the banks and financial institutions (BFIs), the interest rates will be kept unchanged. Nepal Bankers Association (NBA), the umbrella organization of commercial banks, decided to maintain the same interest rate in the month of Asar (mid-June to mid-July) as in the previous month (mid-April to mid-June).

After strong opposition to the interest rate, NBA decided to lower the interest rate to single digit in mid-April. Ever since, the maximum interest rate on personal term deposits is 9.99 percent, for institutional depositors is 7.99 percent and for ordinary savings is 5.4 to 7.4 percent.

Earlier, in mid-December, the maximum interest rate of fixed deposits in commercial banks had reached 12.33 percent. With the increase in inflow of remittance, deposits in banks increased and the liquidity crisis eased. This prompted banks to reduce the interest rates.

Nepal Rastra Bank (NRB) also reduced the bank rate through the review of monetary policy. Liquidity piled up in banks due to the lack of credit flow compared to the increase in deposits.

According to the data of NRB, the average credit-deposit ratio (CD ratio) of banks dropped to 84.40 percent by Monday. Banks are allowed to give loans by maintaining a CD ratio of up to 90 percent, so they have the ability to provide additional loans of more than Rs 300 billion.

As of Monday, the total deposits in the banking system stood at Rs 5537 billion. This is Rs 3 billion more than the previous day. Although deposits in the banking system have been continuously increasing, credit flow has not increased in the same ratio. As of Monday, the total disbursement of BFIs stood at Rs 4853 billion.

As liquidity in the banking system increased, interbank interest rates also decreased. On Sunday, the average interest rate of interbank transactions was 6.21 percent, but on Monday it decreased to 6.18 percent.

Similarly, the interest rate of treasury bills, the government's short-term bond, is also gradually decreasing. On Monday, the average interest rate of 28-day treasury bills fell to 7.003 percent. Similarly, the average interest rate has been maintained at 8.13 percent for 91-day T-bills, 8.04 percent for 182-day T-bills and 8.14 percent for T-bills with maturity period of 364 days. Last week, the average interest rate of 28-day treasury bills was 7.35 percent, 91-day T-bills was 8.68 percent, 182-day T-bills was 8.71 percent and 364-day T-bills was 8.33 percent. Banks reduced the interest rate and invested in the treasury bills after they were unable to expand credit flow.