Tug of war between Policy and Relationship puts NIC ASIA in Dillemma

The constantly rising interest rates has concerned everyone, either it be the borrowers, depositors, investors or even the group of bankers itself. Lately,  the issue of NICA rising its interest rate above the bar set by banker's association has made headlines. There are news regarding suspension of any kind of inter bank transaction with the bank. This decision is sure to affect the entire banking system, if implemented. NIC Asia is now bound to choose between profit or relationship.

Both parties, either it be NIC ASIA or the Banker's association, have their own story to tell. Where banker's association points NIC ASIA's move as the one destroying the entire banking system, NICA claims itself to be moving as per its policy. "Hinderance in our move is against the free market practice" they further add. 

What is NIC ASIA Doing ? 

NICA is aggressively expanding its branches throughout the country. With 181 branches currently, the bank is one of the largest commercial bank in terms of branches and plans to increase it to 200 by the end of the year. NICA aims to upsurge the proportion of retail depositors, such that the bank doesn't need to rely solely upon institutional depositors for deposit. As a result, the bank is consistantly offering lucrative interest rate both in savings and FDs. 

In the present situation of credit crunch, where banks are short of investable fund, this move from NICA has threatened other fellow banks. NICA has increased its deposit collection by more then 50% in the last one year. The bank's move will certainly be proven advantageous in case of prolonged credit crunch. 

Why did Banker's Association set a ceiling in the interest rate ?

The unhealthy competition between banks in order to attract the depositors can put the entire system in trouble. The rise in interest rate for deposit can lead to increased borrowing rates, thus creating an environment unsuitable for business. Moreover, this may invite increasing number of bad debts and rise in project cost. Thus, to safeguard the situation from worsening, the banker's association had set a ceiling on inteterst rate.         

Though both the parties seem correct from their perspective, its now on NICA if it prioritizes relationship over profit and steps back from its decision or still stick to what it decided earlier. What ever the move may be, the governing body needs to take a close look to the situation and intervene when necessary.