NRB Initiates Second Quarterly Review of Monetary Policy: Banks Authorized to Offer Higher Interest Rates on Institutional FDs

GP Chudal
Published on: Feb 23, 2024
In a move to implement a second quarterly review of the Monetary Policy, the Nepal Rastra Bank (NRB) has issued a circular outlining several key revisions. Notably, banks are now permitted to offer institutional fixed deposits (FDs) at an interest rate that is at least one percentage point lower than the maximum rate offered on individual FDs. This adjustment, set to take effect in the upcoming month of Chaitra, aims to streamline interest rate differentials between institutional and individual FDs.

Previously, banks were authorized to offer institutional FDs at a rate that was two percentage points lower than individual FDs. The new provision seeks to adjust this discrepancy, ensuring a fairer and more balanced approach to interest rate offerings across different deposit categories.

Additionally, the NRB has revoked a provision mandating that FDs collected through bidding processes be offered at a rate 0.5 percentage points higher than published interest rates. This decision aims to simplify and standardize the process for determining FD interest rates, promoting greater transparency and efficiency in the banking sector.

Furthermore, the NRB has introduced measures to support agriculture, small, cottage, and middle industries by allowing loans of up to Rs 20 million to be included in the regulatory retail portfolio. Banks can now maintain a 75 percent weighted risk on such loans, thereby easing capital requirements and facilitating increased lending to these crucial sectors.

These initiatives underscore the NRB's commitment to fostering a more conducive and responsive financial environment, promoting equitable access to credit, and facilitating the growth and development of key sectors vital to Nepal's economic prosperity.

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