Deposits pile up, commercial banks' base rate falls below 4 percent

The base rate of commercial banks has fallen below 4 percent. As deposit interest rates kept falling and the cost of funds eased, the three-month average base rate of Rastriya Banijya Bank and Standard Chartered Bank has come down to about 3.96 percent.

At Rastriya Banijya Bank, borrowers now have to pay interest ranging from roughly 4.5 to 7.75 percent. Standard Chartered has set lending rates of about 5 to 7 percent for the month of Kartik. Most banks are lending by adding a premium of only about 0.25 percent to the base rate.

Meanwhile, according to Nepal Rastra Bank, total deposits in the financial system reached about Rs 8.5 trillion as of Kartik 12, nearly 29 percent more than gross domestic product. The National Statistics Office has estimated last fiscal year's GDP at about Rs 6.6 trillion.

Deposits have piled up in the system because consumption and lending have not grown in line with remittance inflows. With loan demand stagnant, banks and financial institutions have accumulated excess liquidity of about Rs 1.4 trillion, which Rastra Bank has been managing by paying interest on it.

In the current fiscal year, up to Asoj, commercial banks disbursed about Rs 145 billion in loans. Even so, commercial banks' average credit-deposit ratio remains limited to around 74 percent.