25th August 2020, Kathmandu
Commercial Banks in Nepal need to follow various rules and standards set by the Nepal Rastra Bank. This helps the banks to maintain a certain standard and follow a consistent procedure. Similarly, commercial banks can provide loans at different rates but they have to maintain a standard rate below which they cannot provide loans. Such a standard rate is known as the base rate for commercial banks in Nepal.
Base Rate: Definition
The base rate for banks in Nepal is defined by Nepal Rastra Bank (NRB). A base rate includes all cost of funds, cost of liquidity (CRR and SLR), and cost of operation.
This is the minimum rate banks have to charge their customers.
In the table below, we’ll look at the list of commercial banks and their base rates. Also, we will compare the base rates from Ashad 2076 and Ashad 2077!
Base Rate of Commercial Banks in Nepal
|Base Rates of Commercial Banks in Nepal|
|S.N||Commercial Banks||Ashad End 2077||Ashad End 2076||Percentage Change|
|1||Rastriya Banijya Bank||5.8||5.5||5.45|
|3||Standard Chartered Bank||7||7.63||-8.26|
|5||Nepal Investment Bank||7.51||8.33||-9.84|
|6||NIC Asia Bank||7.7||9.48||-18.78|
|11||Global IME Bank||8.42||9.54||-11.74|
|12||Prime Commercial Bank||8.62||10.03||-14.06|
|14||Nepal Bangladesh Bank||8.62||10.2||-15.49|
|15||Bank of Kathmandu||8.71||9.98||-12.73|
|23||Nepal SBI Bank||9.25||9.73||-4.93|
|24||Agricultural Development Bank||9.26||10.58||-12.48|
|25||Century Commercial Bank||9.38||11.29||-16.92|
If you study the above table, you will notice that apart from Rastriya Banijya Bank (RBB) all other banks have reduced their base rate. Compare the base rates of Ashad 76 with Ashad 77.
When a bank decreases its base rate, we get loans on lower interest.
We’ve shared with you that numbers tell stories before as well. Even though RBB has slightly increased its base rate from 5.5% to 5.8%, it still has the lowest base rate among all 27 commercial banks in Nepal.
Similarly, banks such as Nepal Bank, Standard Chartered Bank, and Nabil Bank also have less base rate.
On the other hand, Civil Bank and Kumari Bank have the highest base rate.
Base Rate Affects Interest Rate
We know by now that base rates are determined by the central bank (NRB in Nepal). If NRB increases the base rate, commercial banks will increase their interest rates and therefore interest on loans become expensive.
Likewise, if the base rate falls, commercial banks will decrease their interest rates. In which case, there will be more customers seeking loans!
Should Base Rates Always Be Less?
Now you must be wondering that a lower base rate is always good, right?
When the base rate is low, it favors the customers seeking loans. They get loans on a lower interest rate but it affects your return on investment in your deposits and savings in the bank. You get a low rate of return.
Similarly, when the base rate is high, it favors the bank as the rate on loans is high. But that also means a greater return on investment on your deposits and savings.
The central bank, therefore, updates the policy time and again.