KATHMANDU, OCT 15, 2012
Bankers have demanded old loans be exempted from the base interest rate that the central plans to introduce soon. The Nepal Bankers’ Association ( NBA ) made the demands in its official suggestion submitted to the central bank on Sunday.
Base rate is the minimum interest rate that banks should charge on lending. Once introduced, the banks are not allowed to extend loan to borrowers below the base rate.
Lending below that rate would be infeasible for the banks as it is fixed based on minimum cost of fund.
Bankers argue that some projects, to which they have lent, are carrying low risk and it would be unfair to hike the interest rate on their loans . “The central bank must seriously consider this demand,” said an NBA executive member. Some bankers, however, dismissed the demand as illogical saying that the NBA had sent the suggestion under the pressure from a couple of commercial banks. The Nepal Ratra Bank (NRB) is yet to decide on whether to allow banks to continue with the older rate for the older loan.
“We have just received their suggestion, and will decide upon it in our next board meeting,” said a senior NRB official. “It is more likely that we will allow some time for banks to revise their interest rate in line with the base rate on loans that were disbursed earlier.”
The NBA have also suggested the central bank to allow banks to calculate cost of fund on quarterly basis rather than the annual basis as asked by the NRB.
“If fund is calculated on annual basis, the base rate of some of the commercial banks might reach as high as 16 percent,” said the NBA executive member. In another suggestion, the NBA has asked the central bank to be clear on application of base rate on consortium loans . “We have asked that in case of consortium loan, the effective base rate should be an average of the base rates of all the consortium banks,” said a banker.
Similarly, the commercial banks have asked the central bank to allow them to charge interest rate below the base rate for loans disbursed against the special collateral such as cash and government bonds, fixed deposit and foreign bank guarantee.
“Such collateral makes the loan less risky. As they are highly liquid, a bank can recover the loan amount easily even if it is defaulted,” said the banker.
Meanwhile, another NRB official said that they were working on war footing to introduce the base rate before Dashain. The central bank, through its monetary policy, had formally made the announcement to introduce base rate for the commercial banks to make lending pricing more transparent.
However, the regulator formally invited bankers to discuss on the issue only after mid-September. During the meeting, the NRB gave the bankers tentative idea and different variables to be considered while calculating the base rate.
According to the NRB, bankers have been asked to consider pure cost of fund, cash reserve ratio, statutory liquidity ratio, operating cost and minimum predetermined return on investment before calculating the base rate.
Banks are required to maintain six percent of CCR, which means the amount stays idle in the NRB vault. They also have to maintain 15 percent SLR by investing in government treasury bills and bonds, and maintain cash reserve in their own vault.
Source: The Kathmandu Post
Bankers have demanded old loans be exempted from the base interest rate that the central plans to introduce soon. The Nepal Bankers’ Association ( NBA ) made the demands in its official suggestion submitted to the central bank on Sunday.
Base rate is the minimum interest rate that banks should charge on lending. Once introduced, the banks are not allowed to extend loan to borrowers below the base rate.
Lending below that rate would be infeasible for the banks as it is fixed based on minimum cost of fund.
Bankers argue that some projects, to which they have lent, are carrying low risk and it would be unfair to hike the interest rate on their loans . “The central bank must seriously consider this demand,” said an NBA executive member. Some bankers, however, dismissed the demand as illogical saying that the NBA had sent the suggestion under the pressure from a couple of commercial banks. The Nepal Ratra Bank (NRB) is yet to decide on whether to allow banks to continue with the older rate for the older loan.
“We have just received their suggestion, and will decide upon it in our next board meeting,” said a senior NRB official. “It is more likely that we will allow some time for banks to revise their interest rate in line with the base rate on loans that were disbursed earlier.”
The NBA have also suggested the central bank to allow banks to calculate cost of fund on quarterly basis rather than the annual basis as asked by the NRB.
“If fund is calculated on annual basis, the base rate of some of the commercial banks might reach as high as 16 percent,” said the NBA executive member. In another suggestion, the NBA has asked the central bank to be clear on application of base rate on consortium loans . “We have asked that in case of consortium loan, the effective base rate should be an average of the base rates of all the consortium banks,” said a banker.
Similarly, the commercial banks have asked the central bank to allow them to charge interest rate below the base rate for loans disbursed against the special collateral such as cash and government bonds, fixed deposit and foreign bank guarantee.
“Such collateral makes the loan less risky. As they are highly liquid, a bank can recover the loan amount easily even if it is defaulted,” said the banker.
Meanwhile, another NRB official said that they were working on war footing to introduce the base rate before Dashain. The central bank, through its monetary policy, had formally made the announcement to introduce base rate for the commercial banks to make lending pricing more transparent.
However, the regulator formally invited bankers to discuss on the issue only after mid-September. During the meeting, the NRB gave the bankers tentative idea and different variables to be considered while calculating the base rate.
According to the NRB, bankers have been asked to consider pure cost of fund, cash reserve ratio, statutory liquidity ratio, operating cost and minimum predetermined return on investment before calculating the base rate.
Banks are required to maintain six percent of CCR, which means the amount stays idle in the NRB vault. They also have to maintain 15 percent SLR by investing in government treasury bills and bonds, and maintain cash reserve in their own vault.
Source: The Kathmandu Post
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