BFIs not to be allowed to offer silver, gold coins on fixed deposit scheme
KATHMANDU, May 14: Nepal Rastra Bank (NRB) has introduced two measures for bank and financial institutions (BFIs) to prevent unhealthy competition among them to collect fixed deposits.
Releasing a circular on Sunday, the central bank barred BFIs to run schemes to offer gifts like gold and silver coins on their fixed deposit accounts.
Revised interest rate corridor system introduced
Three days after that circular, the NRB issued another rule that will prohibit BFIs from accepting fixed deposits with a maturity period lower than three months. The new rule is aimed at restricting a practice of banks to accept money in fixed deposit for a short period of time.
The new circulars of the central bank come in the wake of growing competition among BFIs to lure fixed deposits to address the shortage of lendable fund. Some banking institutions were making public various schemes like providing silver and gold coins for fixed depositors.
“Accepting deposits is an inherent function of any bank. They should not go into competition by offering unnecessary schemes like silver or gold coins to lure customers. Such approach only promotes unhealthy competition,” said Laxmi Prapanna Niroula, the NRB's spokesperson.
As banking institutions were collecting deposits to avoid long-term costs due to high interest rates when they have to maintain the credit to core capital plus deposit (CCD) ratio, the central bank's new rule will regulate such practices.
The central bank has also barred banks from collecting fixed deposits by allowing depositors withdraw their money before the maturity period at the pre-determined interest rates. To attract more funds, some banks were also allowing withdrawal of fixed deposits just as in the savings accounts.
“These two rules are aimed at regulating BFIs in collecting fixed deposits,” said Niroula.The share of fixed deposits in total deposits of BFIs remains highest. As of mid-March 2019, the share of fixed deposits in total deposits stands at 47.5 percent, up from 44 percent a year ago. The share of saving and demand deposits stands at 8.5 percent and 33.5 percent respectively in mid-March, according to the NRB data.
