Banking Khabar/ After bank interest rates started to decline, the flow of deposits into banks has also begun to decrease. Statistics show that when deposit interest rates were high, people who earned income from bank interest are now withdrawing after the decline in rates. People who deposit money in banks expect to earn a good return from interest.
If interest rates continue to decline in this ratio, those who have deposited money in banks for a long period may withdraw their deposits once their maturity period ends. For the past two years, bank interest rates have been continuously decreasing. Its impact shows that the shift of money towards the non-banking sector is increasing. A decrease in the proportion of fixed deposits in total deposits is also a challenge for a sound economy.
This can affect banks’ stability and lending capacity. Therefore, the government needs to focus on balancing long-term savings and investments in the banking system. Analysts say that as flexible deposit and investment options are increasing in Nepal’s banks and financial institutions, the share of fixed savings deposits is likely to decline further.
Here are the facts:
The proportion of deposits in fixed accounts in banks and financial institutions has been continuously decreasing. According to Nepal Rastra Bank, the total deposits in banks and financial institutions have reached Rs. 69 trillion 69 billion 89 crore. Out of this, the share of fixed deposits is 50.2 percent. Compared to previous years, this shows a declining trend. In Jestha 2081, the share of fixed deposits in total deposits was 58.5 percent. A few years back, fixed deposits were continuously increasing. In Jestha 2078, the share of fixed deposits in total deposits was 48.5 percent, in 2079 it was 57.1 percent, and in 2080 it reached 59.8 percent. But in the last two years, this has declined to 50.2 percent.
In the past, fixed deposit interest rates were in double digits, but in recent years they have been falling. Banks have been reducing interest rates to attract investors towards ordinary savings. Nowadays, people are increasingly withdrawing fixed deposits and investing in the share market. Besides that, savers have also started focusing on other investment alternatives. Recently, as credit investment in the share market has become easier, investors have found it more suitable to invest there rather than keeping money in fixed deposits.
Experts say that although a prolonged decline in fixed deposits could create problems, under the current situation of the country, it cannot be said that it will necessarily lead to problems. Since there are no suitable opportunities for investment at present, they argue that withdrawing money from fixed accounts will not cause issues. In recent months, large institutional depositors who had invested in short-term instruments such as government treasury bills in the hope of rising interest rates have started returning to fixed deposits.
Other alternatives to saving in banks:
After interest rates decreased, they have started bringing back savings into fixed deposits from treasury bills and other short-term instruments. Insurance companies, Employees’ Provident Fund, Citizens Investment Trust, and Social Security Fund are now seen to be depositing money in fixed deposits. Options like shares, mutual funds, bonds, and insurance have also reduced the need to keep money in fixed deposits. As a result, the incentive to keep money in banks for a long time has decreased.
Banks and financial institutions, in this context, are making efforts to increase the appeal of fixed deposits by offering new products and attractive interest rates. At the same time, through savings promotion and financial literacy campaigns, they are working to make people understand the importance of long-term savings. Bankers say, “Currently, there is sufficient liquidity available in banks. Therefore, instead of fixed deposits, banks have created a situation of reducing interest rates to attract money into savings accounts.”
Meanwhile, banks are moving forward with plans to introduce new products and services, expand digital banking, and promote long-term savings to attract investors. The main reasons behind the decline in fixed deposits are interest rates, economic uncertainty, and changes in people’s spending habits. Since the interest provided by banks is not sufficient to cope with inflation and the cost of living, ordinary people are less inclined to keep money in fixed deposits.
Similarly, increased access to cash for consumers and the use of digital payment systems have also reduced the need for fixed deposits. The use of mobile banking, e-payment, and digital wallets has provided the convenience of immediate spending needs, thereby reducing the necessity to keep money in long-term deposits, analysts say.
