Government to intervene on increased interest rates

KATHMANDU: The Ministry of Finance has formed a study committee to suggest how the increased interest rates in the financial system can be reduced. The Ministry of Finance has formed a study committee when the private sector is protesting against the increase in interest rates by banks and financial institutions (BFIs).

An all-party meeting was held at the Ministry of Finance on Sunday regarding the increase in interest rates in the financial system, the demand of the private sector regarding working capital loans issued recently by the central bank. This is not a regular meeting. Recently, Finance Minister Janardan Sharma has called a meeting to discuss the demand of the private sector regarding the interest rate increase and the policy arrangement related to working capital loans.

In the meeting attended by Finance Minister Sharma, stakeholders including Ministry of Finance, Private Sector, Nepal Rastra Bank, National Planning Commission and Nepal Bankers Association were present. Anand Kafle, spokesman of the Ministry of Finance, said that current issues of the economy including liquidity situation, interest rate hike were discussed in the meeting.

He said that a study committee has been formed to study and suggest issues such as the interest rate increase by banks and financial institutions, the working capital loan procedure issued by the central bank and the demands of the private sector. The committee formed under the coordination of Joint Secretary Baburam Subedi, head of Economic Policy Analysis Division of the Ministry of Finance, will have one member of the Joint Secretary from the National Planning Commission, Ministry of Industry, Commerce and Supply and Prime Minister’s Office.

There will be one representative from the NRB, three representatives from the private sector and two members from banks and financial institutions. The committee has been asked to submit its report within five days. In this regard, the committee will give suggestions on how to improve the interest rate, liquidity situation, working capital loan procedures and the demands of the private sector, he said.

Last Thursday, Finance Minister Sharma had said that the government will intervene in the increased interest rates during the opening program of ‘NADA EV Expo 2022’. He said that since the interest of 15 percent is earned by keeping money in banks, there is no investment in the productive sector in Nepal. He said that investing in industry would get 8/10 percent interest, but if kept in a bank it would get 15 percent and if invested in land, it would get twice as much interest, so investment in the productive sector is being discouraged.

Banks and financial institutions have increased the deposit interest from September 17, according to which they have reached 12.13 percent of one-year personal term deposits. Some banks have also announced 15.13 percent interest on deposits through remittance.

Aiming at this interest rate raised by the bank, Finance Minister Sharma said that the government will intervene in it. Is production possible in a country where you can earn up to 13, 14, 15 percent by keeping money in the bank? Of course not,” he said at that time, “that’s where the problem lies. This problem has to be solved.

BFIs have increased the interest rate on deposits, and the interest rate on loans has also increased. On the one hand, there is no money to invest in banks and financial institutions, on the other hand, interest rates have increased. Experts say that this will discourage investment.

Banks and financial institutions have raised the interest rate and the private sector has strongly protested to reduce it. Similarly, they also demand to strictly implement the provision of lending to the manufacturing sector by adding only 2 percent premium to the base rate.