Laxmi Capital News
Rates for institutional depositors can be revised only in 3-month intervals

Due to theinstability in the market caused by the bargaining of institutional depositorsto hike interest rate on deposits during the period of slow deposit growth inbanks and financial institutions (BFIs), Nepal Rastra Bank (NRB) — the centralregulatory and monetary authority — today, issued an instruction to the BFIs tonot revise the interest rates for institutional depositors for at least threemonths.

BFIs can fix theinterest rate for institutional depositors by adding two per cent on thepublished interest rates, but it cannot be revised now for three months. Itmeans the interest rate for the institutional depositors will be revised on aquarterly basis. NRB has ruled over the current practice of the institutionaldepositors including government-owned Employees Provident Fund (EPF) andCitizen Investment Trust (CIT) to only seek profits without taking into accounttheir role in market stabilisation.

CIT and EPFdeposit their funds based on the interest rates that banks offer and in recenttimes they have repeatedly withdrawn their funds from one bank and depositedthe amount in another bank within a very short period, according to NaraBahadurThapa, executive director of NRB. “The central bank’s initiative willhelp bring stability in the
financial market and also make EPF and CIT aware about their role in financialstability instead of just running after high returns.”

However, EPF hassaid that today’s instruction issued by central bank has made it easy for themtoo as they will be able to park their funds in the financial institutions forat least one quarter. Citing the provision of the procurement rules,RajendraKafle, chief officer of EPF, said that the EPF has to deposit its fundsin banks that offer the highest interest rates. “During the deposit crisisbanks revised their interest rates frequently and it was an obligation on thepart of EPF to keep shifting deposits to reap benefits from the highestinterest rates,” he stated.

BFIs can take 50per cent of the total deposits from the institutional depositors, as per theprovision of the monetary policy.

Likewise, thecentral bank has also enforced a provision that account holders of any bank orfinancial institution can make deposits and payments to/from his/her accountsfrom any BFI. Bank customers can deposit funds to their bank accounts or makeutility payments from any financial institution that is convenient for them.

Banks that provideinterbank payment system (IPS) have to provide a slip to depositors  andin case of utility payments, an acknowledgement slip has to be provided statingthe payment has been made through the concerned bank or financial institution.The concerned bank has to notify the client who has availed the service on thesame day if any deposit or utility payment cannot be made. BFIs have to alsoinform customers regarding their charges while providing such services.

Source:The Himalayan Times, 21st January 2018

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