Nepali commercial banks will be reducing their premium interest rate on loans by one percent with effect from March 15.
A meeting of the Nepal Bankers’ Association (NBA) on Thursday decided to reduce the premium rate to five percent at maximum. As of now, commercial banks have been charging a premium rate of up to six percent, in addition to their base interest rates.
As of mid-January, the base rate surged to an average of 10.91 percent, up from around 8.42 percent during the same period last year. On top of it, the banks have been charging an additional premium rate of six percent, taking an interest rate as high as 17 percent on the loan they provided.
NBA President Sunil KC said the bankers decided to reduce the premium rate, mainly targeting to provide some respite to the small borrowers. According to him, they are also reducing the interest rate of call deposit by 0.21 percent, while lessening that of saving deposit by 0.42 percent.
Currently, banks have been providing interest ranging between 6.4 percent and 8.4 percent on saving accounts. In the new rule, the interest rate will remain at a maximum of around eight percent. The bankers however are silent on the interest rates on fixed deposits.
The commercial banks’ move has come up in the aftermath of Nepal Rastra Bank (NRB) issuing a circular to the banks to limit the premium rates in their loans. On Tuesday, the NRB asked the banks not to alter their premium rate that they had fixed once while issuing loans. In general, banks fix premium rates based on the risk assessment of the loans they issue.
According to bankers, they had also been looking forward to revising the interest rates after there was a drastic fall in demand for loans, mainly due to the existing exorbitant rate of interest. Last month, the association reduced the interest rate of fixed deposits from 12.13 percent to 11 percent.
At present, commercial banks have gathered deposits of Rs 47.46 billion from their customers, out of which 28 percent is in saving deposits. Given the banks reduce one percent interest on saving deposit; it will help reduce their costs by more than Rs 13 billion.
As the premium rate is reduced and the interest rate on deposit has also been decreased, the banks will certainly reduce their lending rates, said bankers.
