The Ministry of Finance has made arrangements for commercial banks to count the money allocated to the local governments as deposits from Sunday.
To mitigate the cut-throat competition among banks, Finance Minister Dr Prakash Sharan Mahat has decided to allow 60 percent of the amount allocated to the local level to be counted as a deposit from Sunday, according to the sources in the Ministry of Finance.
“On Thursday, it was decided that the funds allocated to the local level would be considered as deposits in the banks,” said the source, “Today we have sent the letter to the Nepal Rastra Bank (NRB), and these funds will be counted as deposits starting from Sunday.”
The Ministry of Finance initially announced that the local level funds will be counted in deposits until April. But according to the current situation, it has been decided that 60 percent of the amount going to the local level can be calculated as a deposit until there is another arrangement, to keep the economy running.
Finance Minister Mahat held discussions with the bankers along with the representatives of NRB about reducing the interest rate of loans. But after the discussion did not yield a concrete conclusion, Finance Minister Mahat took the decision to keep the economy running by stopping the high interest rate by allowing the amount going to the local level to be counted as a deposit.
Because of the impact of the Covid-19 pandemic, the entire economic system is stagnant. Sources at the Ministry of Finance have said that in the current situation, the base rate of the banks is being lowered, and the fund that goes to the local level to be counted as a deposit is for providing loans to the industrialists at cheap interest rates.
In recent times, even though deposits have been made in banks, entrepreneurs expressed their concerns to Finance Minister Mahat about banks continuously raising interest rates by using their deposits to provide loans. They highlighted that despite having deposits, they were facing problems obtaining loans due to the new lending policies adopted by banks.
However, Finance Minister Mahat, while finding a solution for both parties, revised the existing capital loan guidelines in coordination with the NRB recently, making them timely. In the days to come, local-level funds will be treated as bank deposits as part of a strategy to reduce loan interest rates and prevent issues related to deposits.
