Deposits at dev banks, finance companies up

KATHMANDU, MAY 24:

Depositors have recently started preferring to park funds in development banks and finance companies that offer higher interest rates than in commercial banks that are stingy in terms of deposit rates.

In the first nine months of the current fiscal year, the average rate of deposit growth of development banks and finance companies stood at 6.4 per cent and 4.2 per cent, respectively. However, during the period, the average rate of deposit growth of commercial banks was 3.1 per cent.

Earlier, the situation was reverse. The public trusted commercial banks more as many class ‘B’ and class ‘C’ financial institutions were crashing. Deposits were being diverted from smaller financial institutions to financially larger and stronger banks.

At present, development banks provide six per cent interest for savings and eight to 10 per cent for fixed deposits. Likewise, finance companies give about eight per cent for savings and 10 to 12 per cent for fixed deposits. On the other hand, commercial banks give about four per cent interest for savings and less than six per cent for fixed deposits — almost half the annual rate of price rise in the country.

Commercial banks increased its deposits by 7.8 per cent by mid-April, while during the same period last year, they had seen deposits grow by almost 16 per cent.

“Development banks provide attractive interest rates and are stable enough so depositors have not deserted us,” said president of Development Bankers Association of Nepal Krishna Raj Lamichhane.

Development banks gained Rs 13.3 billion — a 10 per cent growth — increasing its deposits to Rs 135.5 billion by the third quarter. “Moreover, in regional and district level development banks, local promoters actively encourage people to deposit money in their respective companies which is one of the reasons for steady deposit base growth of development banks,” he added.

Finance companies, however, did not enjoy any stable deposit base. After almost half a dozen finance companies failed before the beginning of 2011-12, depositors withdrew money from them. Only by the first half of fiscal 2011-12 were finance companies able to add to its deposit base.

“The money that had once left the finance companies is flowing back as depositors have realised the importance of interest rates,” said president of Nepal Finance Companies’ Association Rajendra Man Shakya.

By mid-April, deposit collection by finance companies grew by Rs 5.47 billion to Rs 80.8 billion, while in the same period last fiscal the amount had grown by Rs 1.3 billion.

“Finance companies have decided to provide interest rates that are at least two percentage points higher than those being provided by commercial banks, hence, depositors are shifting their preference once again,” Shakya informed, adding that since there is no threat of failure at present due to the increased rate of mergers, depositors are also assured.

However, ongoing liquidity crunch being felt by commercial banks has compelled them to increase their deposit rates. Most banks have started to increase their fixed deposit rates. Banks have begun offering rates higher than eight per cent which might again attract depositors to banks.

Source: THT