Commercial banks, development banks and finance companies saw flight of Rs 2.53 billion from fixed deposit accounts and another Rs 8.47 billion from current deposit accounts in between mid-July and mid-November, Nepal Rastra Bank´s latest report shows.[break]
This caused the size of fixed deposits held by banks and financial institutions to shrink to Rs 338.50 billion by mid-November from Rs 341.03 billion recorded in mid-July, while total current deposits fell to Rs 85.41 billion in mid-November as against Rs 93.88 billion reported in mid-July.
“Banks and financial institutions have started witnessing huge drop in volume of fixed deposits, as interest rate on one-year fixed deposit has now fallen to as low as six percent from over 10 percent a year ago,” Rajan Singh Bhandari, CEO of Citizens Bank, told Republica. “That´s why depositors now prefer to park money in savings accounts, which offer similar rates, while giving leeway to make withdrawals any time they want.”
Current accounts, on the other hand, have lost their charm, as most of the business firms have started moving funds to call accounts, which not only offer similar service but higher interest rates as well, Bhandari said.
Because of these reasons, the volume of savings and call deposits at banks and financial institutions rose by 7.2 percent over the first four months of the current fiscal year to Rs 563.25 billion. In the same period last fiscal year, savings and call deposits at banks and financial institutions had expanded by 8.6 percent.
This decline in growth rate of savings and call deposits coupled with fall in fixed and current deposits, created pressure on broad money supply - known as M2 in banking jargon - as it recorded expansion of four percent to Rs 1.18 trillion in the first four months of the current fiscal year as against growth rate of 7.1 percent recorded in the same period last fiscal year.
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