Government Spending Key To Expedite Credit mobilisation

Commercial banks have been battling falling interest rates both on the credit and deposit. The fall in the rates, which has shrunk the interest rate spread, which could badly hurt its profitability. There are signs that the spread could shrink further, and the Nepal Rastra Bank (NRB) has directed the banks to bring back interest rates spread at 4 per cent. The falling interest rates is attributable to abundance of liquidity. During liquidity shortage last fiscal year (FY), the interest rates shot up. Now the interest rates curve has turned downside as liquidity is high. The NRB data shows that the liquidity dipped to Rs 10 to 15 billion towards the end of 2022. Subsequently, the average lending rates of commercial banks shot up to 13 per cent in mid-March 2023. At that time, average rate on deposit rose to 8.37 per cent.