December 17: The interest rates of banks have been declining with the increase in liquidity in the banking system.

Bank deposits have been increasing due to the increase in remittance inflows and economic activities. Banks now have excess of liquidity due to non-disbursement of loans compared to the increase in deposit collection.

Banks and financial institutions have reduced the interest rate on deposits for the month of Poush (mid-December to mid-January). Prabhu Bank and Sanima Bank are the only banks that have kept the interest rate on deposits stable for the review month. The rest of the commercial banks have reduced their interest rates.

Last Friday, Nepal Rastra Bank reduced the policy rates while reviewing the monetary policy for the current fiscal year. After the central bank changed the policy rates, the commercial banks started reducing the interest rates from Saturday.

The NRB has reduced the bank rate from 7.5 percent to 7 percent, the policy rate from 6.5 percent to 5.5 percent and the deposit collection rate from 4.5 percent to 3 percent through the first quarterly review of the monetary policy.

Commercial banks have been able to lower the interest rates after the central bank reduced the policy rate due to excess liquidity in the banking system.

Prime Commercial Bank offers the maximum interest rate of 10 percent on personal fixed deposits for the month of Poush. The interest rate on personal term deposits of 18 banks has fallen to a single digit. Everest Bank has set a maximum interest rate of 8 percent on personal fixed deposits.

As the banks have reduce the interest rate on deposits, the interest on loans are also expected to decline, says Nepal Rastra Bank’s Spokesperson Dr Gunakar Bhatt.

According to NRB data, banks have the capacity to extend loans of more than Rs 600 billion. However, due to lack of credit expansion, liquidity has accumulated in the banks. After the interbank interest rate fell below 1 percent, the central bank has been continuously mopping excess liquidity.