Kathmandu: Commercial banks in Nepal have once again reduced deposit interest rates for the upcoming month of Ashar (mid-June to mid-July), driven by a massive surplus of liquidity in the banking system.
With deposit growth consistently outstripping loan demand, financial institutions are under significant pressure to lower their cost of funds. This trend reflects a cautious market where banks are struggling to deploy capital effectively, leading them to offer lower returns to depositors to manage their internal balance sheets.
The central bank’s regulatory framework has played a decisive role in how banks are adjusting these rates. Nepal Rastra Bank currently maintains a deposit collection rate of 2.75 per cent as the lower bound of the interest rate corridor. Since banks are prohibited from accessing the Standing Deposit Facility if their savings rates fall below this floor, they have found it impossible to further reduce ordinary savings rates. Consequently, banks have shifted their focus to cutting the interest on fixed deposits to manage their expenses, with some institutions pushing these rates to historic lows.
Recent data shows that for the month of Ashar, two out of the 20 commercial banks have dropped their maximum individual fixed deposit rates below the 4% threshold. Overall, 13 banks chose to maintain their existing rates, while seven opted for further reductions; notably, no bank increased its rates this month.
Among those slashing interest rates are NMB, Kumari, Standard Chartered, Himalayan, NIC Asia, Laxmi Sunrise, and Prime Commercial Bank. The average maximum interest rate on individual fixed deposits has dropped to 4.27 per cent, down from 4.34 per cent in the previous month. NMB Bank and the state-owned Rastriya Banijya Bank currently offer the highest returns at 4.75 per cent, while Kumari and Standard Chartered have the lowest.
The aggressive rate cuts on short-term fixed deposits underscore the current imbalance in Nepal’s financial sector. Despite various policy measures, loan disbursement remains sluggish, forcing banks to “park” over one trillion rupees in excess liquidity with the central bank.
As long as credit demand fails to keep pace with the steady inflow of deposits, depositors are likely to continue facing a low-interest-rate environment as banks prioritize financial stability and cost management over the aggressive acquisition of new funds.
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