“Banks are likely to reduce interest soon as they are now in a cushion of adequate liquidity”
KATHMANDU, April 11: Nepal Rastra Bank (NRB) Governor Maha Prasad Adhikari said banks are free to fix their interest rates based on the market situation. His remark came at a time when the government and the private sector have been pressurizing the central bank to lower the interest rates.
Speaking at a press meet on Tuesday, NRB Governor Adhikari clarified that the central bank will not intervene to fix the interest rates of banks. “It is completely not in my hand to raise or to reduce interest rates,” Adhikari said.
In the free market system, banks fix interest rates based on their liquidity position. “The availability of liquidity at the market and risk of loans are the main factors that determine the interest rates,” said Adhikari adding that the interest rates could fall very soon as there is an improvement in liquidity in the banking system.
The central bank implements policy measures like spread rate to regulate the interest rates. Adhikari said the central bank has reduced the spread rate to benefit the general people from excessive interest rates. “In addition, banks have been asked to take only up to two percent of premium on the loans issued for the small firms.”
According to the NRB, there is a notable improvement in the external sector indicators, while the banks are having good financial health. The capital adequacy ratio of banks is above 13 percent, while net liquidity ratio is more than 23 percent and the ratio of bad debt stands at 2.63 percent.
Adhikari ruled out the private sector’s outcry that the economic activities have slowed down in the country due to exorbitant interest rates. “In the past also, the economy had felt the heat of the double-digit interest rate on loans,” he added.