September 20: Nepal Rastra Bank (NRB) has directed all banks and financial institutions (BFIs) to fix their interest rates on all personal loans like home loans and auto loans before the end of Ashoj (October 16). The central bank had issued the Unified Directive 2077 more than two weeks ago , instructing all BFIs to fix a stable interest rates on personal loans, with more than one year to maturity.

The central bank has given the deadline of October 16, after the bankers expressed the need for more time to conduct necessary studies and analyses before fixing and implementing the stable rate of interest.

Dev Kumar Dhakal, executive director of the Banking and Financial Institutions Regulation Department of NRB, said that the banks have been given some time to make necessary arrangements to fix their long-term interest rates and to manage the risks associated with it.

“The loans taken at a rate of 8 percent have been increased to 15 percent. Many customers complained about the fact that the interest rates keep rising,” he told New Business Age, adding, “This is why the banks will have to determine a fixed interest rate along with the necessary plans for managing their risks.”

Debtors had to constantly worry about the new rates as the banks usually increased their interest rates every 3 months. All the debtors complain about facing difficulties every time the interest rates increased. The policy for a fixed interest rate was introduced to put an end to this. Since this rate will have to be implemented for a long term, commercial banks, development banks and finance companies are busy studying and analyzing before determining their rates.

The interest rates on deposits and loans have been decreasing as banks have a liquidity of around Rs 200 billion. Bankers said that they are trying to determine the appropriate long-term fixed interest rates for personal loans by studying and employing proper strategies. Banks have also been analyzing the changes in the interest rates on deposits and loans in the last 30 years.

Bhuwan Kumar Dahal, chairman of Nepal Bankers’ Association, said that they were studying about how international banks have fixed their interest rates on personal loans. “All of the banks are studying each and every aspect of fixed interest rates in their own ways,” he said, “If necessary, the association will also conduct a study.”

Saroj Kaji Tuladar, president of Nepal Financial Institutions Association, also said that finance companies have also been analyzing the rates of the last 30 years on loans and deposits to determine their fixed rates. He believes that this will allow them to understand how and when the rates changed in the long term, which will help them to determine their fixed interest rates.

“It may be risky to fix the interest rates for a long term in a country with a volatile economy. That is why we had requested the central bank to determine the fixed interest rates for 1-2 years.”

Banks and financial institutions will give the customers the choice to opt for the fixed interest rates on personal loans with more than one year to maturity. NRB has made a provision that will allow the customer to choose either a fixed interest rate or a floating rate that change with the changes in the base rate of the BFIs.

According to NRB, the terms and conditions of the personal loans including home loans and auto loans will have to be updated as per the customer’s request, to maintain the fixed interest rate on the monthly/ quarterly/ periodic installments before the implementation of this directive.