Guv asks banks to hike interest rates on deposits

- POST REPORT, Kathmandu

Feb 16, 2015-

Nepal Rastra Bank Governor Yubaraj Khatiwada on Monday asked banks and financial institutions (BFIs) to make upward revision in interest rates on deposits, terming the current rate “too low”.

After a two-year liquidity surplus, the situation is now tightening, which is evident with the fact that inter-bank lending rate has soared to 5 percent.

Khatiwada warned the banks may have to again face liquidity crunch which they faced three years ago if they don’t hike interest rates on deposits. “To ensure the interest rate does not reach to 13 percent from the current 3 percent, they must hike the rate now,” he said.

With deposit growth slowing and credit growth expanding, the average credit-to-deposit (C/D) ratio has already reached 76-77 percent, according to NRB. “So the banks don’t have more space to make reckless lending,” said Khatiwada, speaking at the unveiling of the Mid-Term Review of the Monetary Policy.

With the surplus liquidity situation ending and  the government’s treasury holding over Rs 90 billion at the end of the first half, Khatiwada said the banking system could face “stress” in liquidity this year if government fails to spend.

Expressing worry over slow remittance growth, the governor expressed surprise how could the remittance slow at a time when the number migrant workers has grown and their wages has not declined.

In the first six months this year, remittance growth stood at just 3.9 percent against a rise of 34.4 percent in the same period a year ago. According to the NRB, decrease in remittance is one of the reasons why banks’ deposit growth slowed— at 6 percent in the first half this year, against 8 percent in the same period last year.

However, Khatiwada said he does not think a slow remittance growth would lead to liquidity crunch in banks, at least this fiscal year. He stressed on the need for making efforts to bring in remittance through formal channels by providing incentives to migrant workers and taking other administrative measures against those using illicit medium like Hundi.

MFIs told to reduce spread rate

NRB Governor Yubaraj Khatiwada said micro-finance institutions (MFIs) must reduce the gap between the interest rates on deposits and credit, warning them that central bank could control on their dividend. Given commercial banks already reducing their spread rate to 4.5 percent, Khatiwada said the MFIs cannot do business by maintaining a spread rate at 15-16 percent despite. “If this situation is not controlled, we have to control your dividend,” Khatiwada warned, congratulating banks for earning “good profit” despite reduced spread rate.

Published: 17-02-2015 07:41

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