August 21: Depositors have started depositing their money in ordinary savings accounts of banks and financial institutions (BFIs) instead of fixed deposit accounts after the BFIs lowered the interest rates.

Banks have reduced the interest rates due to ease in liquidity situation in the banking system. As a result, the ratio of fixed deposits has also started to decrease.

In the last fiscal year (FY), banks had increased interest rates to attract deposits due to lack of liquidity. After that, the share of fixed deposits in the bank increased. In the last few months, with the ease in liquidity situation, the share of fixed deposits has started to decrease after the reduction in interest rates.

According to the data of Nepal Rastra Bank, 58.9 percent of the total deposits with banks and financial institutions worth Rs 57.70 billion in the last fiscal year (FY 2022/23) accounted for fixed deposits. In the previous year (FY 2021/22), the share of fixed deposits in banks was 55.8 percent.

Due to lack of liquidity in the last fiscal year, banks provided high interest rates to increase deposits. In order to attract deposits, they collected deposits by introducing schemes up to 21 years with a return of up to 10 times. As a result, the share of fixed deposits had reached 60.4 percent in mid-January last year. In mid-December last year, the interest rate on deposits of commercial banks had reached as high as 12.33 percent. Since the banks have started reducing the interest rates, the share of fixed deposits has started to decrease. Banks had reduced the interest rate on fixed deposits to a single digit since mid-April.

According to the instructions of the central bank, banks are allowed to give a maximum interest rate of 5 percentage points more on fixed deposits than the minimum interest rate on ordinary savings.

There is a provision that the difference between the maximum and minimum interest rates given in all types of local currency deposit accounts, except for call deposits, cannot exceed 5 percentage points. Similarly, there is a provision that banks can give 1 percentage point more interest on fixed deposits of remittance than on ordinary fixed deposits. Therefore, banks have been stressing on tenure to attract deposits.

Last December, the share of fixed deposits reached its highest point with 60.4 percent while current account was 7.8 percent, savings account 25.6 percent and others 6.2 percent. Compared to January, the share of fixed deposits decreased in June, while the share of savings and other deposits increased.

According to the interest rate published by the banks for mid-August to mid-September, the interest rate on term deposits has been determined up to 10.896 percent. The banks, which had been applying a uniform interest rate determined by the Nepal Bankers' Association for the past one and a half years, have started to determine interest rates on their own from mid-July.