As liquidity conditions have improved, banks and financial institutions have begun lowering interest rates on fixed deposits. With both individual and institutional fixed deposit interest rates decreasing, the share of such deposits has also declined.

According to Nepal Rastra Bank data, as of mid-January 2024, fixed deposits accounted for 52.5 percent of the total deposits of Rs 6,737 billion held by banks and financial institutions. A year earlier, the share of fixed deposits stood at 59.9 percent.

In FY 2022/23, due to a liquidity crunch, banks had raised fixed deposit interest rates to attract funds from the general public and large institutional depositors, such as insurance companies, the Employees' Provident Fund, and the Nepali Army.

Since the last fiscal year, as liquidity has eased, banks have been lowering fixed deposit interest rates. Despite having the capacity to provide loans exceeding Rs 650 billion, banks have struggled to expand credit flow due to weak demand for loans. As a result, they have continued reducing deposit interest rates, leading to a decline in the share of fixed deposits, according to former banker Parshuram Kunwar Chhetri. With lower interest rates, institutional investors have started shifting their funds from bank deposits to instruments such as government bonds.

While the share of fixed deposits is decreasing, the proportion of ordinary and current deposits is on the rise. In 2023, ordinary savings accounted for 26.7 percent of total bank deposits, increasing to 34.1 percent in 2024, according to central bank data. Banks are allowed to offer a maximum of five percentage points above the minimum interest rate on ordinary savings. As per Nepal Rastra Bank’s guidelines, the difference between the maximum and minimum interest rates on all types of domestic currency deposit accounts, except call deposits, cannot exceed five percentage points. Additionally, institutional deposit interest rates must be at least one percentage point lower than those for individual deposits.

The Nepal Bankers’ Association had decided to end the gentlemen’s agreement from mid-July 2024, allowing banks to determine their own interest rates. Since then, banks have gradually lowered interest rates, keeping most of them unchanged for mid-February to mid-March. Among them, only Global IME Bank has increased its fixed deposit interest rate by 0.25 percentage points for this period.