Dev banks lure depositors with higher interest rates

KATHMANDU, OCT 20 - 

In what appears to be shift in deposit mobilisation, commercial banks have reported a drop in deposits while development banks and finance companies have gained during the first two months of the current fiscal year.

According to Nepal Rastra Bank’s (NRB) report on the country’s macro economic situation released on Friday, deposit mobilisation of commercial banks decreased 0.1 percent (Rs 1 billion) in the review period while deposits in development banks and finance companies rose 2.8 percent and 1.9 percent respectively.

The trend was the other way around during the same period in the last fiscal year with commercial banks witnessing a 2.4 percent (Rs 16.66 billion) rise in deposits while development banks and finance companies saw their deposits fall 1.9 percent and 3.7 percent respectively.

The shift coincides with the move by commercial banks to hurriedly slash interest rates on deposits as they are awash in liquidity.

“We have deduced that falling interest rates prompted people to move their savings to development banks and finance companies which pay more,” said Min Bahadur Shrestha, executive director at the research department of NRB. He added that dropping interest rates could be harmful to the economy as it could lead to capital flight and a rise in consumption leading to higher inflation.

Meanwhile, lending by banks and financial institutions (BFIs) in the two-month period has grown by Rs 25.89 billion compared to last year’s increase of Rs 11.14 billion. Their credit flow to the private sector grew 2.1 percent (Rs 16.59 billion) compared to a decline of 0.3 percent (Rs 1.74 billion) in the last fiscal year.

According to the report, inflation in the second month stood at 11.2 percent, a drop from 11.9 percent in the previous month. Inflation in the same period last year was 8.5 percent. Both food and non-food items recorded a double-digit rise in prices in the second month.

Under food items, sugar and sweet sub-group prices surged 23.4 percent, the highest. Other products recording a high price rise are ghee, oil and tobacco. Among non-food items, transport fares increased the most by 15.7 percent, followed by clothing and footwear and furnishing and household equipment.

Meanwhile, the country’s trade deficit surged to Rs 76.68 billion in the first two months compared to Rs 57.43 billion during the same period in the last fiscal year.

Nepal’s exports to India declined 0.4 percent while exports to other countries soared 34 percent during the review period. At the same time, imports from India and third countries jumped 31.5 percent and 26.7 percent respectively.

Source: The Kathmandu Post