Development banks unhappy with 5% spread rate

ShareSansar, Sept 1:

Development banks have urged Nepal Rastra Bank to widen the spread rate – the difference between borrowing and lending rates of financial institutions -- to more than 5 percent.

Though the NRB has capped the spread rate at 5 percent through its monetary policy introduced at the beginning of the ongoing fiscal year, the provision is awaiting implementation pending NRB’s directive. The central bank is expected to issue a circular in that regard soon.

Unlike commercial banks, development banks do not have income source outside of core banking activities such as issuing letter of credit for all sectors, remain a guarantor in case of government tenders, and trading in foreign currencies. That is why they are seeking higher spread rate, which could help to boost their income.

Meanwhile, an official with Nepal Rastra Bank has said it is not possible to increase the spread rate for development banks as they have been charging higher interest rates on loans compared to the commercial banks.