NBA introduces yet another ceiling to curb the rise in interest rates; Gentleman’s agreement signed by all 28 banks

A few months back when the interest rates started to sky rocket due to liquidity shortage, Nepal Bankers’ Association (NBA) had signed an agreement whereby all the bankers had agreed to not raise the interest rates on saving accounts, fixed deposits for institutional savers and individual savers beyond 7%, 10.5% and 11%.

However, recently when bidding was done for the deposits of National Reconstruction Authority, a few banks had provided 11%, which was beyond what had been agreed. This attracted a lot of talk and finally NBA called upon all the members and sat for another meeting. The result of that meeting was another Gentleman’s agreement. According to the agreement, now the limit for fixed deposits for institutional savers has been decided at 10% or less. Similarly, for individual savers the FD rate will be below 11%. In addition to this, the agreement also has specified a lower limit for savings accounts at 5%. So, as per the new agreement the interest rate on savings can’t go below 5%, wherein the upper limit is still 7%.

There are still questions regarding the contracts that have already been signed, the FD accounts that have already promised higher rates. Breaking the contract might hurt the credibility of the bank and continuing it might leave a window for similar activity in coming future. There has been no definite decision regarding what will be done.

The previous Gentleman’s agreement had received a lot of criticisms and was also broken at multiple occasions. It is yet to be seen, how this one will turn out.