So far, the banks were providing interest returns on one year fixed deposit at 12 %. Their lending rates for different sectors stand in a range of 14 to 15 %.

Rana, who is also the CEO of Himalayan Bank Limited (HBL), released that his bank has already slashed the deposit rates by 0.5 % ge point for the corporate depositors. "We already have signed deposit agreements with institutional depositors like Employees Provident Fund (EPF) and Citizens Investment trust (CIT) at 11.5 %," he stated.

Deposit rates for fixed deposits by general public have been slashed by a percentage

Nabil Bank and Everest Bank too have introduced similar cuts in the interests on deposits. "More will follow suit," said another NBA official.

With the cut in deposit rates, bankers said they would soon make announcements on lending rates as well.

Amid rise in deposits, bankers said they are slashing deposit rates by about a %age point. Ashok Rana, president of Nepal Bankers´ Association (NBA), said lending rates too would gradually go down by similar extent soon.

The fresh development in the bank rates would put depositors at loss, but bring cheers to borrowers. The latest spate of high interest rate regime, which lasted for over a year, had inflicted huge cost on businesses and added serious financial burden to retail customers.

The banks had increased the deposit rates by around 3 % ge point in 2010, particularly after they failed to lure depositors and build resources for fulfilling loan demands.

That had led to a proportionate rise in lending rates. The upswing had mainly hit small borrowers of housing and car loan as banks at one point effected an overnight rise in rates by as much as 3 %. It had also jeopardized industrial operations, particularly a sudden rise in loans distorted the margin with which they operated, fuelling price rise.

Bankers said they decided to cut the rates mainly as their practice did not convince them that high interest rates would help banks draw deposits in large scale. "We believed we must hike deposit rates if we are to draw depositors. But trend of deposit flow, which still remained weak, has proven our belief was wrong. We now believe it is time to provide some relief to borrowers," said Rana.

Click here to apply property loan

NBA had jacked up the rates particularly as Nepal Rastra Bank (NRB) argued that their low interest offer, contrary to high rates of development banks and finance companies, was diverting the depositors to those institutions. The deposit collection figures compiled by NRB then had shown such a trend. Following which, on NRB´s advice bankers raised their rates, agreeing not to raise fixed deposit rate above 12 %.

Source: [republica]