Half of Commercial Banks Cut Fixed Deposit Rates for Mangsir as Liquidity Surplus Deepens

Commercial banks have once again reduced their fixed deposit interest rates for the month of Mangsir, continuing a trend of declining deposit rates amid persistent liquidity surplus and weak credit demand. Newly published rate sheets from 20 commercial banks show that 10 banks lowered their individual fixed deposit rates, while the remaining 10 banks maintained the rates of Kartik without revision. The split decision reflects a sector grappling with excess funds but limited avenues for lending.

The latest reduction has pulled down the average individual fixed deposit rate to 5.04 percent, a decline of 0.16 percentage points from Kartik’s average of 5.20 percent. Institutional deposit rates also fell modestly, by 0.07 percentage points, signaling that the broader interest rate environment continues to soften. Bank officials say the cut was inevitable as large volumes of idle liquidity remain unabsorbed in the financial system.

Analysis of bank-wise data shows that some of Nepal’s largest and most influential institutions opted for rate cuts. NIC Asia, Siddhartha, Himalayan, Standard Chartered, Prime Commercial, Citizen, Nabil, Nepal SBI, Sanima and Kumari Bank reduced their maximum individual fixed deposit rates. In contrast, major lenders such as Global IME, Rastriya Banijya Bank, Nepal Bank, ADBL, NIMB and Prabhu Bank left their rates unchanged, suggesting a more cautious stance as they balance deposit costs with long-term lending prospects.

Among all banks, NIC Asia Bank made the most aggressive cut, reducing its maximum individual fixed deposit rate by 0.75 percentage points compared to Kartik. The bank will now offer a maximum of 5.75 percent, down from 6.5 percent last month. This is the steepest month-on-month rate cut in the commercial banking segment. NIC Asia also lowered institutional deposit rates, signaling a broader strategy to reduce funding costs.

In terms of rate comparison, Global IME Bank continues to offer the highest interest rate for individual fixed deposits at 6 percent, making it the most attractive option for depositors seeking higher returns. Conversely, Standard Chartered Bank remains at the bottom, offering just 4.7 percent, consistent with the bank’s traditionally conservative lending model and reliance on corporate clients rather than retail deposit competition.

The ongoing reduction in deposit rates is closely tied to structural liquidity pressures in the banking system. Banks have been facing a prolonged phase of excess liquidity, stemming from subdued private sector borrowing and slow economic activity. Despite an accommodative monetary environment, loan disbursement has stagnated, particularly after recent political disruptions and declining business confidence following the Gen-Z movement. Bankers note that credit flow has become “nearly stagnant,” forcing them to lower deposit rates to avoid accumulating high-cost liabilities.

Monetary policy settings have also influenced the decline. Nepal Rastra Bank currently maintains a policy rate of 4.5 percent, with the Standing Liquidity Facility (SLF) at 6 percent and the Standing Deposit Facility (SDF) at 2.75 percent. These benchmarks guide commercial banks’ pricing decisions. The central bank has been actively absorbing liquidity through deposit collection instruments and long-term liquidity tools, putting downward pressure on market interest rates across both deposits and loans.

While short-term deposits now carry notably lower yields, banks continue to offer slightly higher rates for long-term deposits, particularly those exceeding five years. This approach allows banks to secure stable funding without incurring excessive costs in the short term. Financial analysts say this strategy indicates that banks expect the low-interest environment to persist for several more quarters.

Despite the decline in deposit rates, there has been only marginal improvement in lending rates, as credit demand remains weak across major sectors including manufacturing, trade, real estate and SMEs. Bankers argue that until business confidence returns and investment pipelines revive, interest rates alone will not stimulate borrowing. This mismatch—ample liquidity but minimal credit uptake—poses ongoing challenges for the banking sector.

The current trend raises broader concerns about the health of the economy. While low deposit rates reduce banks’ funding costs, they also diminish returns for savers, especially retirees and lower-income households dependent on interest income. At the macro level, declining deposit rates typically point to suppressed economic activity, weak investment appetite and limited expansion in the productive sector. Analysts warn that unless credit demand picks up, the financial sector may face profitability pressures despite adequate liquidity.

Overall, the banking sector enters Mangsir with declining deposit rates, rising idle liquidity and subdued loan growth. As half of the banks lower their rates and the other half keep them stable, the broader trend remains downward, reflecting an economy that is yet to regain momentum. Unless structural challenges—such as confidence loss, slow investment approval, and policy uncertainty—are addressed, banks may continue to operate in a low-interest, low-lending environment for the foreseeable future.