Curb High Interest Rates

The country’s financial sector is suffering a liquidity constraint, which has pushed banks and financial institutions to hike their rates of interest on loans. As the negative liquidity situation has continued on, banks and financial institutions have indicated they have found it challenging to issue loans at interest rates they had agreed before. Due to the slow flow of funds, BFIs of late have provided higher interest rates on deposits with a view to drawing more cash to them. They have maintained that they have no alternative but to boost the interest rates on loans they offer to manufacturers, businesses, and others so that they earn some profits.

However, the hike in the rate of interest has driven some Nepali entrepreneurs and businesspeople to the streets to condemn such a move by banks. Various sectoral and district-level organisations of the business sector, including the executives of the Federation of Nepal Industry and Commerce, conducted a peaceful protest against the recent spike in interest rates. They stated they had found it challenging to operate industries and enterprises owing to what they term "excessive interest rates." The irate businessmen asked that the banks drop the interest rate to a single digit, lower service costs, suspend present capital loan guidelines, reduce premiums, and maintain stability in interest rates. The disgruntled businessmen noted that, despite the financial facilities offered to them in the past to keep firms affected by COVID-19 functioning, loans have been stopped for the past six months owing to a shortage of investable cash and liquidity concerns. 

As part of their debt recovery strategies, banks have also threatened firms with auctioning their properties. Panicky enterprises have suddenly felt the heat owing to the increase in interest rates. What frustrates them is the fact that the Nepal Bankers' Association has lately broken an agreement not to increase the interest rate by announcing to take a premium of up to 8 per cent on the interest rate of the loan. At now, the average base rate of loans is more than 10 per cent, and if the 8 per cent premium is included, the interest rate would exceed 18 per cent. It needs to be mentioned that businesses and merchants have also petitioned the central bank, the Nepal Rastra Bank, to remedy the matter. They said the monetary policies of the current financial year and the newest current capital loan criteria had led to an increase in the interest rate.

The committee constituted by the Ministry of Finance to address the need of business people to enhance the business climate owing to challenges such as interest rate hikes and a shortage of liquidity also advised that the interest rate increase should be limited. Businessmen have also been asking to execute the recommendation of the committee constituted under the direction of the Joint Secretary of the Ministry of Finance after studying the economic condition in the nation. In summary, increasing lending rates have actually struck the firm hard. The agitated manufacturers and merchants have a strong point. However, no one should overlook the fact that commercial houses usually look for gaining profits under any conditions. Therefore, before responding to their requests, the Nepal Rastra Bank and Finance Ministry should do a comprehensive evaluation of the existing circumstances regarding the interest rates and liquidity situation. Only then can they go on to overcome the difficulties encountered by our businessmen.