Janata Bank providing 13% interest in fixed deposit; how is StanChart able to provide loan at 9.99% only?

- Suramya Khanal

Advertisements published side-by-side today on Kantipur Daily showed two different sides of two commercial banks today. Janata Bank Nepal Limited (JBNL) is providing a return of 13% interest per annum on fixed deposits above Rs 50,000 to its depositors, while Standard Chartered Bank Nepal Limited (SCB) is offering home loan at only 9.99% interest p.a.

How is SCB able to lend at such lower rate?

Banks, just like any other company, have a certain rate of return above which they expect to remain in profit. This includes all cost of funds, cost of operation, cost for maintaining cash balance, and return on their assets. Nepal Rastra Bank has termed this as “Base Rate”.

As per NRB directives, banks can provide loan by charging interest in "Base Rate + Premium". This premium differs according to the type of loan.

Since base rate includes all expected/ongoing cost of their operation, this is the minimum rate which they should charge lending rates on. If a bank’s base rate is 5%, they should charge more than 5% to remain in profit. At the end of Chaitra 2074, SCB’s base rate is 5.97%. Thus, SCB will generate profit if it provides loan at interest rate higher than 5.97%. In the same period, JBNL’s base rate is 10.37%. So, Janata Bank cannot provide loan at any rates below 10.37%.