Banking by collusion

Nepal’s rate-setting connivance exploits customers, by either paying less on deposits or charging more on loans.

A July 13 decision by the Nepal Bankers’ Association, which is an umbrella organisation of the nation’s 20 commercial banks, to allow its members to freely fix interest rates on deposits and loans as they see fit drew widespread praise. Previously, rates were set by the association, and its decision was binding on all its members. NIC Asia Bank tried once to go on its own, but was soon forced to join the herd as it was ostracised by fellow banks. In a budding market economy, the centrally decided uniformity in rates among leading banks reflects poorly on banking leadership, including Nepal Rastra Bank, the nation’s central bank, whose job it is to regulate not to let this type of collusion take place at all.