Nepal Rastra Bank (NRB) has asked banks and financial institutions (BFIs) to alter interest rates on their loans on a monthly basis.
Revising the unified directive on Monday, the central bank has enforced the new rule. As of now, the BFIs have been allowed to alter their interest rates only on a quarterly basis.
The NRB has come up with the new rule at a time when it is facing an increasing pressure from the government to enforce expansionary monetary policy and to reduce interest rates. In addition, the BFIs are now having excess liquidity while they have been unable to attract more borrowers to take loans mainly due to the high interest rates.
Under the new provision, the BFIs need to consider the average of the base rates of the previous three months while fixing the new interest rates. The central bank has barred the BFIs to fix the new interest rates below the average base rates of the stipulated time.
However, the BFIs will not have to follow the average base rate rule if they tend to reduce interest rates by a higher percentage than the average base rate. Likewise, the rule is not mandatory if the BFIs have to keep the interest rates unchanged for their old clients. They have to convey proper information about the changed interest rates to their clients through the offer letter.
