In the months of Jestha and Ashar, interest rates remained mostly stable. But from Shrawan, banks in Nepal have started reducing interest rates again, especially for fixed deposits. This comes after the Nepal Rastra Bank (NRB) lowered key policy rates in the monetary policy announcement made last Friday.
Why Are Interest Rates Falling?
NRB made the following changes in its policy:
- Policy rate dropped from 5% to 4.5%
- Standing liquidity facility rate from 6.5% to 6%
- Deposit collection rate from 3% to 2.75%
These changes have pressured banks to lower deposit interest rates, as the return from keeping extra liquidity in NRB has also decreased.
Also, Ashar is known for high capital expenditure by the government. This year, 32% of the total annual capital spending happened in Ashar. This created more liquidity in the financial system and pushed rates down even further.
How Have Banks Adjusted Their Rates?
Out of 20 commercial banks:
- 14 banks have reduced their maximum fixed deposit rates
- 4 banks have kept them the same
- 2 banks have slightly increased them
For example:
- Himalayan Bank raised its rate by 0.50%
- Standard Chartered Bank increased it by only 0.01%
New Average Interest Rates
According to the newly published data:
- The average maximum fixed deposit rate for individuals was 5.902% in Ashar
- It has now dropped to 5.687% in Shrawan
→ A decrease of 0.215 percentage points
Most banks are also giving lower rates for short-term deposits and higher rates for long-term deposits. The published maximum rates usually apply for long-term deposits only.
Too Much Liquidity, Not Enough Lending
Even though banks have money, they are not able to lend enough. As a result, over NPR 692 billion is sitting idle in the system.
As of the end of Ashar:
- NPR 377 billion was collected through deposit instruments
- NPR 315 billion through the Standing Deposit Facility (SDF)
This shows that excess liquidity is still a major issue, even though economic indicators are improving slowly.
NRB has said that compared to last year, the liquidity it absorbed has doubled. By the end of the last fiscal year, only NPR 355 billion was absorbed. But now, it’s almost 700 billion.
Fixed Deposit Rates Comparison: Ashar vs Shrawan
Here’s a quick look at how the major banks adjusted their fixed deposit interest rates:
| Bank Name | Ashar Rate (%) | Shrawan Rate (%) |
| Agriculture Dev Bank | 5.45 | 5.40 |
| Everest Bank | 6.55 | 6.25 |
| Nepal Bank | 5.45 | 5.40 |
| Laxmi Sunrise | 5.75 | 5.50 |
| Machhapuchchhre Bank | 6.00 | 6.00 |
| NIC Asia Bank | 6.55 | 6.25 |
| Prabhu Bank | 6.10 | 4.25 |
| Standard Chartered | 6.25 | 6.26 |
| Rastriya Banijya Bank | 6.00 | 5.50 |
| Nabil Bank | 5.75 | 5.50 |
| Global IME Bank | 6.00 | 6.00 |
| Siddhartha Bank | 5.75 | 5.75 |
| Prime Commercial Bank | 6.25 | 6.00 |
| Kumari Bank | 5.71 | 5.41 |
| Sanima Bank | 6.33 | 6.18 |
| Himalayan Bank | 5.50 | 6.00 |
| Nepal SBI Bank | 5.50 | 5.35 |
| Investment Mega Bank | 5.50 | 5.25 |
| NMB Bank | 6.00 | 6.00 |
| Citizens Bank | 5.65 | 5.50 |
Source: Official Public Notices
Final Words
With declining deposit rates, savers may earn less interest on their savings. But for borrowers, it might be a better time to take out loans. Overall, the falling rates reflect the excess liquidity in the banking system and low credit demand. Unless lending activity improves, this downward pressure on interest rates is likely to continue in the coming months.
