Kathmandu. Large institutional depositors including insurance companies are changing their investment strategy after banks and financial institutions continuously reduced the interest rates on deposits.
Institutional depositors have started reducing their investment in fixed deposits and focusing on other financial instruments as they see that their income will shrink due to the fall in interest rates. In the first month of the current fiscal year, institutional deposits in banks and financial institutions have shrunk by Rs 21.5 billion. In the same period last year, the fixed investment of big depositors, including insurance companies, had decreased by Rs 3.07 billion.
Large institutional depositors had deposited Rs 13.36 trillion in fixed deposits in banks and financial institutions till mid-July last year. However, by mid-July, this amount has come down to Rs 13.14 trillion.
The Social Security Fund (SSF) has started investing in debentures, government bonds and mutual funds by withdrawing the amount from the fixed deposits after the interest rate fell drastically.
Similarly, Employees Provident Fund (EPF) has withdrawn fixed deposits worth Rs 4.72 billion in the last one month. Similarly, fixed deposits of Citizen Investment Trust (CIT) decreased by Rs 3.60 billion in the first month. The fund’s fixed investment has decreased to Rs 129 billion in mid-July from Rs 133 billion in mid-July.
The bank has reduced the interest rate on institutional fixed deposits to 2.75 percent. Since such low interest rates are not beneficial, we have started investing in treasury bills and development bonds. Banks have started paying interest only on institutional fixed deposits. Therefore, the stakeholders say that the investment has been diverted to the area that gives high returns.
The share of fixed deposits, which was in an increasing trend in the past, has decreased in recent years. Experts say that the main reason for this decline is the continuous decline in the interest rate found in fixed deposits. Interest rates, which used to reach double digits in previous years, are now in single digits in most banks. At the same time, bankers have also started saying that there is enough liquidity now and it is time to pay attention to current and savings accounts rather than fixed deposits.
With the ease of investing in the stock market, it has become more practical for investors to invest in areas that get returns than to keep money in fixed accounts.
However, not all institutional depositors have reduced the tenure. Insurance companies, on the other hand, have increased their fixed deposits. In the last one month, insurance companies have increased their fixed investment by Rs 8.11 billion. Insurers say that even though the interest rate has decreased, there are not many alternative sources of investment.
Looking at the statistics from 2075 BS to 2082 BS, there has been a significant change in the saving habit of the citizens. In 2018, the share of savings account was 34.5 percent, which came down to 25.6 percent in 2080. However, it increased again to 36.2 percent in 2082.
Similarly, the share of fixed deposits increased from 45.7 percent in 2018 to 59.8 percent in 2080 and then fell to 50.2 percent in 2082. The share of current accounts is gradually declining. It has been limited to 5-6 percent.
