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The interst rate Scam is solely created problem of banking system of Nepal and it is somehow
related to the inefficiency of NRB. Deposit is growing naturally by14% but stupid bankers raise their
loan by 24% .NRB becme blind in supervision. Then how does the system work? It is purly artificial
and stupid work.

The Interest Rate Scam is eyed by the Whitepaper......And seems current Finance Ministry will not tolerate it....When interest is regulated, kept down, investing blooms....

...Baki Ishwor ko leela.....

In banking business, when cost of fund goes higher , bank are not able to raise interest yields in similar pace, while when cost of fund goes lower, they dont pass the low cost benefits to borrowers so fast, so lower the cost of fund, higher the interest spread, and higher the cost of fund, lower the interest spread.
No bank loves to take deposit at high rates, it generally poses systematic challenge to banking business in many ways, eg
-especially the borrower wont be interested to take loan at high rates, which shrinks asset growth of banks,
-higher rates leads to higher interest charges for borrowers, whose chances of default increases with low liquidity
-gdp growth shrinks in high interest rates environment as investment flatters, which decreases banks other operating income too.
this all leads to lower growth in profits of banks, which converts to low ROE too.
Everything is rosy for businesses, markets, country, people, investors, punters, when interest rates are very low. Lets learn from USA!

SCENE 1
- Banks collect deposit at 12% and it can maximum lend at 17% by maintaining 5% spread rate.
- Hence maximum profit a bank can make is 5%. Hence Rs 5 in each Rs 100.


SCENE 2
- Banks collect deposit at 5% and , it can maximum lend at 10% by maintaining 5% spread rate.
- Hence maximum profit a bank can make is 5%. Hence Rs 5 in each Rs 100.


PROFIT IS SAME
- Hence profit is same in both cases, at 5% deposit collection or at 12% deposit collection.

THE TRUTH
- IF ALL BANKS OPERATE IN FULL CAPACITY IN ECONOMY
- THEIR PROFIT FROM CORE BUSINESS (BORROWING & LENDING) IS SAME

THE SCAM
- A grade commercial banks have on an average 12 arab in equity (324 Arab in total)
- B grade development banks have on an average 4 arab in equity (144 Arab in total)
- Now if 5% deposit rate is maintained, lending rate will be constrained at 8% to 10% - This is less for EQUITY.
- Now if 12% deposit rate is maintained, lending rate will be constrained at 14% to 17% - This is GREAT for EQUITY.

GENTLEMAN AGREEMENT
- This agreement is for 12% because it is optimum level of exploitation and competitive return on equity
- Profit from core business is same + 14% to 17% return on equity is added (when rate of deposit is increased)
OR ELSE
- This agreement could have been done for 5%
- And profit from core business would also be the same + only 8% to 10% return on equity is added (when rate of deposit is around 5%)

EXPLOITATION
- ECONOMICS is bullshit, theory of demand and supply
- Because according to that theory, demand for loan is more and deposit rate should go UP
- But it wont go up due to GENTLEMAN AGREEMENT
- As 12% is optimum level of exploitation for large class of borrowers and optimum RETURN ON EQUITY

NRB IS ALSO BULLSHIT
- NRB could have easily take measures and direct a circular for deposit rates
- But they give credence to the belief that its demand and supply
- But NO, It is a financial scam in the cover of Economic theory

CONCLUSION
- In banking industry, core business income (from borrowing and lending) is SAME
- BECAUSE ALL ARE IN FULL CAPACITY (80% CD RATIO) and cant give more loans
- NBA or NRB can restrict deposit rates to 5% and control lending rates and core business income of banks wont change
- BUT ROE will fall
- Same in 2007 and same in 2018 , after increment of paid up capital of banks

...........BAKI ISHWOR KO LEELA....