Banks to publish base rate from mid-January
KATHMANDU, DEC 26:
It will soon be easy for prospective borrowers to choose bank from which to borrow as commercial banks are readying the base rate to be published from mid-January.
“Banks have already started the work in fixing base rate based on central bank’s directives, and will start publishing it soon,” said spokesperson for Nepal Rastra Bank (NRB) Bhaskar Mani Gyanwali.
NRB had introduced the concept of base rate that provides banks a reference rate for determining lending rates back in November. Banks will have to determine the base rate based on a formula provided by NRB and publish it starting mid-January. They have to update the information on the base rate on their website on a monthly basis.
The base rate will be based on cost of fund, Cash Reserve Ratio, Statutory Liquidity
Ratio, operational cost and return on assets. The system is supposed to make the interest rate transparent that will provide basic referential floor for the banks. Potential borrowers can compare the base rate of different banks and decide which one will be suitable for their credit needs.
“The base rate concept will definitely be helpful for banks as it will inspire them to be more efficient,” said vice president of Nepal Bankers’ Association Upendra Poudel.
However, he shared his concerns that if the public do not fully understand the concept it will only create misunderstandings. “The public have to understand that the base rate only provides a reference for lending rate, but while giving the actual loan banks also have to consider the risk factor and the period of the lending which piles on interest, but customers might feel cheated, thus increasing negativity towards banks,” he pointed out.
Earlier, NRB had decided to make the base rate a mandatory floor for the lending rate. However, in its final directive, it did not make it obligatory because new banks would have to charge higher lending rate as their base rate would have been higher than the already established ones.
The average cost of fund of banks stood at around six per cent, while average cost of fund of the five recently established banks is at 7.5 per cent. Likewise, their operation cost is higher and return on assets is lower as they are still struggling to make a firm stand.
After recovering from the liquidity crisis, banks that had been giving higher interest rates on deposits and subsequently charging higher interest for lending have been accused of not lowering the lending rate though deposit rate has come down. Base rate will bring in transparency in interest rate determined by banks.
Decision on Gurkha Dev Bank soon
Nepal Rastra Bank (NRB) is mulling over the ultimate decision on the fate of troubled Gurkha Development Bank. “We at the central bank are ready to decide on the right step for the development bank as it has not been able to bring itself out of the dump even after almost two years,” said spokesperson for the central bank Bhaskar Mani Gyanwali. The development bank was declared troubled in March 2011 after the bank’s directors and executives were found to be involved in insider lending that hurt its solvency. Since then the bank has not been able to improve its performance as the promoter groups are in dispute as well. The central bank will now have to decide on whether to take over Gurkha Development Bank or send the troubled financial institution to liquidation soon. The ‘B’ class financial institution has yet to recover its bad loans worth over
Rs one billion. Nepal Rastra Bank has already sent Nepal Development Bank (NDB), Samjhana Finance and United Bikas Bank for liquidation due to similar reasons.
Source: THT
