Nepali Banks Under Scrutiny for Failing to Return Excess Interest Premium on Loans

Nepali commercial banks have come under fire for disregarding directives from the Nepal Rastra Bank (NRB) regarding the return of excess interest premiums on loans. Despite clear instructions issued by the NRB’s Supervision Department on October 27, 2022, a significant portion of the additional interest collected remains unreturned, leaving borrowers at a financial disadvantage.

According to findings outlined in the 61st annual report of the Office of the Auditor General, commercial banks have been frequently adjusting and raising premium interest rates on loans extended to customers. The report underscores that this practice has not only affected borrowers but also has broader implications for the economy.

The NRB had mandated that banks refund a total of Rs 4.66 billion to borrowers for overcharging on interest rates. However, it has been revealed that banks have only partially complied with these instructions, sparking concerns over transparency and accountability within the banking sector.

The Office of the Auditor General emphasized the adverse effects of the banks’ actions, noting that the inflated premium rates could lead to inflationary pressures on the prices of goods and services, impacting the general public. Furthermore, the report highlighted potential ramifications on the profitability of banks, financial institutions, and the overall income tax revenue.

In response to these findings, the Office of the Auditor General has urged for stricter monitoring of banks and financial institutions. It recommended that regulatory bodies include assessments of premium interest rates on loans in their monitoring reports and take appropriate action against non-compliant institutions.

The failure of banks to adhere to regulatory directives not only undermines the trust of borrowers but also raises concerns about the overall stability and integrity of the financial system.