2% Point Difference in Loan Interest Fixed by Central Bank makes Bankers stressful, New Guidelines Seems Unsuccessful

Kathmandu: Central Bank Of Nepal issued a directive to the banks on 12th of October,2023 A.D. After that directive, some banks and bankers have started cracking down. Those who are enjoying a comfortable income are worried whether it is unsustainable.

After the Central Bank issued directives that the difference between the loan interest rate and the premium interest rate should not be more than 2% points, the bankers were under stress. They will have to follow this instruction from next Thursday i.e. 19th of October. If the difference between the interest rates of loans and mortgages of the same nature cannot be more than 2% points, then those who are close to the bank director, chief executive or higher level officials of the bank, i.e. those who have access to them, will have to break the practice of getting loans by adding only one percent premium to the base rate. If that happens, it is said that the public will be relieved.

The Central Bank has brought a new provision by revising point 15 of the ‘interest rate related provisions’ of the integrated directive. Former finance secretary and professor Rameshwor Khanal says, “Central Bank seems to have taken this new policy as the practice of banks giving loans to each other in collusion and investing loans only to those who have their own control, but also imposing the burden of interest on the common people which was necessary in same way issuing instructions is not a big thing, what is important is implementation.”According to Khanal, the guidelines issued by the National Bank should be strictly followed in the implementation as well.

Stating that even if someone cheats, everything will be known in the audit, he emphasized that the National Bank should be able to take strict action against the cheaters.After the Central Bank has built a wall, some bankers have become angry. It has already been instructed that the premium rate to be added to the base rate should be clearly mentioned in the loan offer letter (offer letter) given to the borrower.

While fixing the premium rate, it cannot be set higher than the published premium rate at the time of receiving the loan application. The premium rate once fixed cannot be increased under any pretext. The bankers who are indulging in (malpractice) have faced trouble after the current rules are also interrelated with them.

It is said that this will discourage the tendency of paying the compensation of loans given cheaply to one by others. Earlier, the one with contacts were getting loans at 11% if the base rate was 10%, adding 1% premium. Whereas, other common borrowers had to pay up to 15% interest when running loans under this title.Now, after the directive those banks should give loans to the borrowers at 11 percent, due to which they cannot take more than 13 percent from other borrowers.

Banks are panicking as this will reduce the interest rate difference between banks’ borrowers and affect their income. Due to low premiums, they will also face temporary difficulties. Now they are in trouble. The chain has fallen from both sides. Those who are charging only one percent premium to the borrowers will no longer be allowed to keep more than 2 percentage points in the loan of the same title and they will not be allowed to increase the once specified premium.Banks, which are enjoying 4 to 5 % premium on base rate, have to reduce interest.

Which will affect the income of banks. Especially the banks that run by business and industrial houses are going to face problem.’Cosmetic’ policyBanks have already imposed internal policies before the Central Bank brings policies to us. Economist and Professor Dr. Dilliraj Khanal says that it should be clear that for what purpose the interest rate of loans and mortgages of the same nature cannot be differentiated by more than 2 % points.He said, ‘It seems that the Central Bank issues directives only if there is pressure on us. However, structurally, it is not seen matured i.e. done with proper planning.

This directive made also seems very frequent.Stating that it is not a big deal to issue directives, he emphasized that for its implementation, it should be done holistically. He further said, “Either you should be able to enforce. If not, do not just do as you have done. Where does the economy run with the tendency to show off and show off at beginning, and to sit idle at other times?”Aiming at the difficulty in implementation, Professor Dr. Khanal said that the structure is bad. He said, “What is seen in the structure is that the banks are doing one thing or the other, they are not moving to the left or right of Bagmati province and if we look at the post-Covid period, it seems that most of them are investing only in real estate.

How can we strike a balance in such a situation? Tomorrow, these same banks will tell us that we have been cheated.”As Professor Dr. Khanal said that the bankers have come to understand how the Central Bank is showing its actual face. He also said that the Central Bank is trying to have more control on the spread rate by applying this system.The bankers have already started saying that there should not be a gap of 2 percent in the loan itself.

If the spread will fall to 2 % then that 2 % cannot be sustained.According to them, since the new system will reduce the income, the premium added after the base rate of interest rate must be increased. Currently, the base rate has a premium of up to 4 percent. Some bankers have argued that if monitoring is started more than required, then it will not take long to reach 8 to 10 percent.