Kathmandu. KATHMANDU: Nepal Rastra Bank (NRB), the central bank of Nepal (NRB), has decided to scrap the provision of 1 percentage point less interest rate on fixed deposits than individual fixed deposits. The bank is in the current fiscal year 2082. The announcement was made in the first quarter review of the monetary policy of the year 83.
With this announcement, the insured will be benefited from the additional interest income received by the life insurance company. Insurance companies are still investing up to 80 percent of the amount collected in fixed deposits. At a time when the interest income of new deposits has shrunk due to low interest rates, the insurer will now be able to earn the same interest income as the general public if they renew or keep a new deposit.
For example, now the general public used to get 4 percent interest on fixed deposits, while institutional depositors like insurance companies have to deposit deposits at 1 percentage point less, i.e. only 3 percent. Both of them will be able to keep fixed deposits at the same interest rate after the implementation of the announcement made by the Nepal Rastra Bank.
After the interest on fixed deposits fell to single digits, the Nepal Rastra Bank (NRB) had introduced a provision to maintain the interest rate by at least 1 percentage point in the case of institutional fixed deposits effective from March 1, 2080. Earlier, there was a provision that banks and financial institutions were required to set a minimum interest rate of 2 percent on institutional fixed deposits.
The first quarter review of the monetary policy states, “The existing provision of reducing the interest rate of institutional fixed deposits by at least 1 percentage point compared to the interest rate of individual fixed deposits will be repealed.”
It was easy for life insurers to keep fixed deposits at a lower interest rate of 1 percentage point than the interest rate of 6 percent per annum. Currently, the interest rate on deposits has come down to below 5 percent. This is the reason why life insurers were compelled to deposit a large amount of insurance premiums daily with an interest rate of 2 to 2.5 percent per annum.
According to the Nepal Rastra Bank, insurance companies have deposits of Rs 687.96 billion in banks and financial institutions as of mid-October last year. Insurance companies can invest up to 80 percent of the total investible amount in fixed deposits. However, the challenge for CEOs of insurance companies has increased after banks have started refusing to renew fixed deposits maturing in the last few months due to sufficient liquidity.
