KATHMANDU: Commercial banks have continued cutting deposit interest rates for Bhadra, the second month of fiscal year 2026/27, as excess liquidity and weak credit demand continue to weigh on the banking sector.

Of the 20 commercial banks, 15 have kept their deposit rates unchanged for Bhadra, while five have reduced them. Rising remittance inflows have continued to push deposits higher, while credit expansion has remained sluggish, leaving banks with excess funds and prompting them to lower deposit rates to reduce funding costs.

The average maximum interest rate on individual fixed deposits has fallen to 4.14 percent for Bhadra from 4.17 percent in Shrawan, a decline of 0.03 percentage points.

Bank deposits increased by around Rs 1 trillion in fiscal year 2025/26, while credit expanded by only around Rs 400 billion, widening the gap between deposits and lending.

The Nepal Rastra Bank has set the deposit collection rate at 2.75 percent under the current monetary policy. Banks cannot reduce savings deposit rates below the prescribed threshold if they want to remain eligible for the central bank’s standing deposit facility. As a result, banks have been reducing fixed-deposit rates to lower their overall cost of funds.

Siddhartha Bank has made the largest cut, reducing its maximum individual fixed-deposit rate by 0.29 percentage points to 3.76 percent from 4.05 percent. Kumari Bank has lowered its rate by 0.09 percentage points to 3.76 percent, while Standard Chartered Bank reduced it by 0.05 percentage points to 3.80 percent. Citizens Bank cut its rate by 0.10 percentage points to 3.85 percent.

Nepal Bank reduced its rate by 0.10 percentage points to 4.15 percent. Himalayan Bank, Prime Commercial Bank, NIC Asia, Laxmi Sunrise, Rastriya Banijya Bank and Global IME Bank have retained their 4 percent rate.

Everest Bank has retained 4.05 percent, Nepal SBI Bank 4.10 percent and Agricultural Development Bank 4.15 percent. Nepal Investment Mega, Sanima, NMB and Machhapuchchhre banks have retained 4.50 percent, while Prabhu and Nabil Bank have kept their rate at 4.55 percent.

Banks have parked Rs 1.265 trillion in liquidity with Nepal Rastra Bank as credit demand remains weak.

Former Nepal Bankers’ Association president Bhuvan Dahal said excess liquidity could be absorbed by directing investment toward commercially viable large-scale projects. He also warned that fixed-deposit rates below 3 percent against inflation above 5 percent are hurting senior citizens dependent on interest income.

Dahal said investment in hydropower, transmission and distribution infrastructure could help create demand for bank credit. He argued that greater private-sector involvement in electricity transmission and distribution could help export surplus power and increase demand for funds in the banking system.

He estimated that producing 10,000 megawatts of electricity would require around $15 billion in investment, with firm power purchase agreements with India and Bangladesh needed to support such investment.