NRB’s Restriction on Interest Rate Gap May Result Lower Interest Income for Insurers

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Kathmandu: The fresh circular issue by Nepal Rastra Bank(NRB), the central bank, will result lower interest income for insurance companies. The NRB has made an arrangement under which the saving interest rate offered to the institutional depositors must be below 1 percent than that of individual depositors.

It has been stipulated that the maximum interest rate provided in institutional fixed deposits should be at least 2 percentage points lower than the maximum interest rate provided in fixed deposits to the general public. Before it, the difference was of only 1 percent.

A year ago, the NRB had made such an arrangement to cap the interest rate of institutional deposits, saying that the institutional depositors helped increase the interest rate of the banks by bargaining on the interest rate. Still, the problem of lack of liquidity in the banking system remains the same. Institutional depositors like insurance companies have been negotiating better interest rates with banks amid the on going liquidity crunch among BFIs.

 

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