Nepal Rastra Bank Central Office Banks and Financial Institutions Regulation Department irectives No. 15/067 Subject: Provisions Relating to Interest Rates The following Directives have been issued, having exercised the powers conferred by Section 79 of the Nepal Rastra Bank Act, 2002, with regard to the interest to be paid for the deposits and interest to be charged for loans and advances by the licensed institutions. 1. Provisions Relating to Interest Rates The "A", "B" and "C" Class licensed institutions shall be free to fix interest rates for both deposits and lending, including fixation of types of interest and procedures on their own, 2. Prohibition for Fixing Flat Rate of Interest The licensed institutions other than "D" Class institutions shall not be allowed to flat interest rates on the loan and advances. 3. Interest Rate to be approved Licensed institutions shall implement the interest rates for deposits and lending, procedures for calculation of interest, penal interest, commission and service charges only after approval. The institutions may increase the interest rate for deposits up to a point of 0.5 percent over the published rates, but in case of interest rate on lending it should not be higher than published rate Provided that 389(a) Interest rate may be fixed on the agreement between bank or financial institution and customer in the case of perpetual fund or in case of deposit having the maturity period of more than five years (b) No provision of published interest rate shall be applicable in case of the institutional deposit to be collected on the basis of bidding Submission of Return on Interest Rate The licensed institutions shall compulsorily furnish the statements of interest rates on deposits and lending to Banks and Financial Institutions Regulation Department and the concerned Supervision Department of this Bank within seven days of the end of each quarter. Moreover, the licensed institutions shall submit all provisions and procedures relating to interest rates according to Clause 3 above at the time of beginning of the implementation and changes made thereto within seven days. Interest Rates to be published ‘The national level "A", "B", and "C" Class licensed institutions shall publish the particulars according to Clause 4 above at the time of each amendment made in the interest rates on deposit and lending in national daily newspapers. The regional/ district level institutions shall publish the particulars of changes in the requirement of about the minimum level of balance to be maintained in the regional/district level newspapers. Provided that the "D" Class institutions may publish the rates putting the information on its notice board. Provisions of recording interest income: ‘The interest accruals on loan and advances shall be recognized as income on cash basis only. The interest accrued but not realized in cash shall be recognized in the year of cash realization and the account shall be reconciled accordingly. Interest receivable for a period shall be debited to “interest receivable account" and credit to "interest suspense account” 390Provisions relating to providing intere: In situation where interest on credit/lending by banks and financial institutions on a quarterly basis, interest shall be credited to the savings account of depositors at least on every 3/3 months basis. Interest to be provided to depositors shall be provided at least on average deposit balance of week, month, quarter or other duration on the basis of which the interest has to be calculated according to the policy of the concerned bank and financial institution to provide interest on deposit liability. Note. “Average deposit balance" means the average of daily closing balance to be maintained after the end of daily transaction, (For example, the procedures according to which licensed banks and financial institutions use to have calculated interest on the remaining amount of credit and lending, the same procedures shall be applied in the calculation of the interest.) Action for Non-Compliance of provisions relating to interests rate: If the licensed institutions are found not complying with the Directives relating to branch/ offices, actions may be initiated under the Nepal Rastra Bank Act, 2002. Repeal and Saving: (1) The following Directives issued by this Bank heretofore have been repealed: - Provisions relating to interests rates in the Unified Directives, the Directives issued under Directive No. 15/066 and all circulars issued until mid-July, 2010 relating to the matters under this subject. (2) Actions taken under the Directives repealed pursuant to sub-clause (1) shall be deemed to have taken under these Directives. 391