NRB flexible on spread rate; NEPSE may gain 30 points today

ShareSansar, July 13:

Nepal Rastra Bank has revised a provision on calculation of spread rate, which now allows BFIs to easily to maintain the rate at five percent within the current fiscal year.

Following pressure from the World Bank and International Monetary Fund and intense lobbying by Nepal Bankers’ Association, the central bank has now decided to let the BFIS include the interest income of the amount invested in government securities while calculating the spread rate.

Now that the central bank has decided to let BFIs to include the interest income from government securities -- which is nominal (less than 1 percent) as compared to the bank’s interest rate --while calculating the spread rate, this averaging of high and low interest rates automatically reduces the spread rate for the BFIs.

This will automatically bring the spread rate below 5 percent for most of the commercial banks and they can now invest in the sector that provides higher yield.

This will be more beneficial for the commercial banks, especially the state-run banks, which have already kept their spread rate below 5 percent.   

Impact on the stock market

Besides the bankers, the stakeholders in the capital market have also welcomed the latest development.

One of the noted experts of the stock market, Dipendra Agrawal said that the latest decision of the central bank will send the stock market to a new high.

“I think that the benchmark index should rise by 20 to 30 points when the market opens on Sunday – more so because of the good news related to the spread rate than the budget to be announced later on that day,” Agrawal said.

It may be noted that back in January, officials with the Bankers’ Association had hinted that the central bank may revise the existing method of calculating the spread rate.

The multilateral donors and the domestic bankers had raised alarm after the central bank had directed the BFIs on October 10, 2013 to bring down their spread rates below 5 percent within the current fiscal year.

The BFIs had been complaining that limiting the spread rate to 5 percent would hurt BFIs, especially the commercial banks with a huge deposit.

The bankers have also been urging the central bank to review the current calculation method of directly reducing the interest rates on deposits and credit without calculating administrative costs. But the central bank has not agreed on that as of now.