News reports of banks preparing to further increase the lending interest have sent jitters to the borrowers<br>SANJAYA DHAKAL

Jan. 23, 2011, 5:45 p.m. Published in Magazine Issue: Vol. :04 No.-15 Jan. 21-2011 (Magh 07,2067)

In the last one year alone, the banks and financial institutions have doubled the rates of interest on loans from the average of 7 percent to 14 percent.

This, some bankers say, may soon increase further.

Particularly, the lending to the realty sector and home/auto loans could see the rise of further few percent in the interest rates.

This news has caused businessmen to shudder in anxiety.

The Federation of Nepalese Chamber of Commerce and Industry (FNCCI) Kush Kumar Joshi has said that the businessmen could find themselves in a situation where depositing money in bank will be more profitable than running businesses.

The investors in realty sector are much more apprehensive.

“Due to the doubling of lending rates in past one year, the realty sector is already suffering. Worse, this has come at a time when the central bank has tightened guidelines on banks to limit their lending to real estate. As such, in the last one year, the number of transactions of real estate has declined by almost 90 percent,” said Min Man Shrestha, general secretary of Housing Association of Nepal.

The bankers are criticized for only trying to increase the rates instead of accepting reduced profits in ‘rainy days.’

But they are quick to point out the ‘reality.’

“We have not made decision to increase the rates. But it is true that the cost of fund has increased and the problem of liquidity is worsening,” said Radhes Pant, former president of Nepal Bankers Association (NBA).

At a time when the central bank’s leadership has come forward in announcing measures to tackle the financial ills, the problems in lending rates that could directly impact common consumers should get appropriate attention.

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