Central Bank powerless to check rising interest rate

- BIBEK SUBEDI, Kathmandu

Feb 10, 2019-

Nepal Rastra Bank, the central monetary authority of the country said that it was impossible to bring down the high interest rates charged by banks and financial institutions on loans and advances as demanded by the business community.

Industrialists in the eastern region upset by high interest rates charged by banks on loans have demanded that such rates be slashed to 7 to 9 percent. They have blamed the Nepal Rastra Bank (NRB) for being indifferent towards the rising interest rates which is favouring the banks at the cost of businesses.

However, Central Bank Deputy Governor Chinta Mani Siwakoti told the Post that the central bank was not in a position to ask the banks and financial institutions to bring down the rate immediately as demanded by the business people. “The interest rates on loans have gone up due to higher cost of funds. As long as the banks operate within the spread rate set by the NRB, we can’t force them to bring down their rates,” said Siwakoti. “Nevertheless, we are holding talks with industrialists as well as the banks to see what can be done to reduce the interest rates.”

The NRB can take action against the banks for charging high interest rate on loans only if their spread rate exceeds 5 percent — the threshold set as per the central bank regulation. If banks’ spread rate does not exceed 5 percent, no legal action can be taken. Siwakot also dismissed the industrialists’ allegation that the central bank is indifferent towards the exorbitant interest rates charged by banks and said the NRB was working within its limit to check the rising interest rate.

“Recently we summoned the top management of banks to our office and asked them to lower the interest rate on deposits to single digit so that the banks’ cost of fund doesn’t shoot up,” he said. “If we hadn’t intervened then, the interest rate on deposits would have gone further up and so would the rates on loans and advances to the businesses.”

Interest rates will gradually come down when banks get their new deposits at a lower rate and not immediately as demanded by the industrialists, Siwakoti added. “As banks are lending from the deposits they collected in the past (which was done offering higher rate), they can’t immediately bring down the interest rate on lending,” he said.  

The industrialists especially of the eastern region, on the other hand, are not willing to settle down unless the interest rates on lending are brought down. “Currently, we have put our protest programme on hold after the Provincial government assured us that our demand will be met,” said Pawan Kumar Sarda, president of Morang Merchants’ Association. “We will have a meeting with NRB officials tomorrow facilitated

by Province Number 1 Minister for Internal Affairs and Law Hikmat Bahadur Karki. Our future action will be based on the outcome of the meeting.”

A couple of weeks ago, the business people based in the Morang Industrial Corridor launched their protest programme which included actions ranging from padlocking the regional office of the Nepal Rastra Bank to handing over their factory keys to the Prime Minister. But they have kept their protest programme on hold after the provincial government assured them that their demand will be addressed.

Published: 10-02-2019 08:14

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