BFIs under pressure to cut back interest rates

ShareSansar, July 26:

The new monetary policy released by Nepal Rastra Bank is beginning to have its effect on the banking sector.

The NRB’s policy to reduce CRR, SLR and spread rate is fuelling liquidity, thereby, putting pressure on the BFIs to cut back interest rates.

The NRB’s policy to reduce the CRR by 1 percent brings down the CRR for commercial banks to 5 percent, development banks to 4.5 percent and finance companies to 4 percent, which means BFIs can set aside more of their funds for lending purpose.

NRB has also directed the BFIs to keep the spread rate below 5 percent. That will also affect the interest rates as BFIs would be compelled to reduce the spread rate, currently around 7.1%, to keep it within the limit set by NRB.

A drop in spread rate should also lead to a fall in interest rates in deposits and loans. At present, commercial banks have set interest rates of up to 10 percent on deposits and 15 percent on loans.