Savings accounts record growth
KATHMANDU, MAR 29:
Similar interest rates being offered for savings and fixed deposit accounts by financial institutions have sped up the growth rate of savings deposits, while fixed deposits have remained stationary.
In the last seven months, savings deposits have gone up by 13 per cent, while fixed deposits have crawled up by only one per cent. In the beginning of the fiscal year, financial institutions had Rs 372.1 billion in fixed deposit accounts, and Rs 400.7 billion in savings deposits.
By the end of the seventh month of the current fiscal year, the amount in savings accounts surged to Rs 452.5 billion, while fixed deposits was at Rs 377.9 billion.
“Of late, the difference in interest rates offered for savings and fixed deposits have been narrowing, thus, depositors prefer savings to fixed accounts due to the flexibility,” said president of Nepal Bankers’ Association Rajan Singh Bhandari.
According to Nepal Rastra Bank, the weighted average interest rate offered for savings deposit stands at 4.34 per cent, while weighted average interest provided for fixed deposits is 7.37 per cent. Financial institutions have slashed the interest rate on fixed deposits to as low as four per cent due to comfortable deposits.
Although development banks and finance companies provide higher interests, it also stands somewhere around eight per cent for fixed deposits. On the other hand, banks are offering three to five per cent interest for savings deposits.
Fixed deposits account for 33 per cent of total deposits of financial institutions, while savings make up about 40 per cent.
“Depositors will not tie their money up for fixed tenures in bank accounts if the interest rate is not more than the ones provided for savings deposits that allow flexibility of withdrawal,” said Bhandari.
“Moreover, banks are offering innovative and attractive savings products and depositors are being attracted to these portfolios,” he added. Most of the banks offer different savings schemes targeted specifically for women, elderly and college students among others.
Earlier, during the liquidity crisis in the financial sector, financial institutions were offering as high as 12 per cent for one-year fixed deposits that contributed in the amount of such term deposits to increase. But as interests have gone down, depositors are not interested in renewing the term. Likewise, for banks also, to keep money at fixed deposits meant they were not able to reduce interest rates according to market conditions.
However, once again, the financial sector seems to be walking into a tighter liquidity situation as depicted by higher credit to deposit ratio which stands at 79 per cent, and the interest rates are expected to go north again.
Source: THT
