Kathmandu. The insurance business has also been facing the problem of declining interest rates seen in the banking sector in the last two years. Interest rates on fixed deposits, which have increased for a few years after Covid-19, have fallen again in the last two years.

The interest rate on deposits has come down to 4.37 percent in the 10 months of the current fiscal year from 7.86 percent in the fiscal year 2079/80. If you look at the interest rate for a period of five years, it has increased. However, compared to the last two financial years, the interest rate has come down.

According to the CEOs of insurance companies, the interest rate on fixed deposits of the bank has hit the insurance business continuously for the last two years. Interest rates on deposits kept by insurance companies in banks have come down in large numbers in a span of a few years. As a result, the profits of insurance businesses and companies have been hit.

“In the past, we have seen such challenges only after a gap of 4-5 years. At that time, the bank’s interest rate had come down from 11 percent to 5 percent. Santosh Prasai, ceo of Prabhu Mahalaxmi Industries Company, says, “But it did not happen for a long time. For almost a year and a half now, interest rates have come down from 11-12 per cent to 3.5 per cent, and we don’t know how long it will last. ’

In recent times, deposits have piled up in banks and financial institutions, while credit investment has slowed down. As a result, interest rates on both deposits and loans of banks and financial institutions have come down. Prasai believes that this has had a big impact on insurance companies.

“Some banks have started offering loans at a flat rate of 7÷8 per cent for a period of seven years. Prasai says, “But that too has not led to a significant increase in the demand for credit. This indicates that the current interest rate is unlikely to rise. There is no sign of a rise as soon as in the past. Prasai believes that the insurance business can also be increased by changing the insurance policy. Similarly, he says, the time has come to focus on selling high-yield products in the coming days.

According to insurance experts, although the Insurance Authority has given permission to the insurance company to invest in different sectors, the insurance company has not invested in the place of taking ‘riks’ but has emphasized on deposits. Currently, Nopal has mostly participating policies. In such products, the insurers get the facility to participate in the company’s profits. But,

Along with deposits, the profit of the insurance company is also declining, so the dividend received by the insurers from the company’s profit is also decreasing. “When the interest rate was around 11-12 per cent, we were not worried much. Because we were able to give bonus returns to customers at a good percentage. Prasai says, “At present, people are reluctant to keep deposits in banks due to low bank interest rates, which makes it easier for the insurance sector to sell a single insurance policy.” ’

Interest rate on deposits

In the third quarter of the current fiscal year, life insurance companies have invested Rs 733.74 billion in fixed deposits of banks and financial institutions. Of these, the highest deposit investment is in ‘A’ year bank. Life insurance companies have invested Rs 514.42 billion in this sector.

Till the third quarter of the current fiscal year, micro-insurance company has invested Rs 2.27 billion in the overall finance sector. Similarly, micro-life insurance companies have invested Rs 2.16 billion in the finance sector.

In the third quarter of the current fiscal year, non-life insurance companies have invested Rs 68.07 billion in banks and financial institutions. Most of them are in term deposits of commercial banks. The non-life insurance company has an investment of Rs 45.70 billion in the term deposits of the ‘A’ year bank.

According to the rules of the Insurance Authority, reinsurance, non-life and life insurance companies have to keep 30 percent of the business money in term deposits of commercial banks. However, due to lack of scope of other investment, insurance companies have invested the largest amount in ‘A’ category bank’s miscellaneous deposits. Similarly, 10 per cent investment should be made in development banks, 5 per cent in finance companies, 30 per cent in bonds of commercial banks, development banks and finance companies and 20 per cent in listed public companies.

Insurance companies admit that they have invested more money in fixed deposits than they can afford. Insurance companies prefer to invest in such sectors as investing in fixed deposits in the banking sector is safer than other sector investments. As a result, the falling interest rate has affected the insurance business, said Santos Prasai, executive officer (CEO) of PrabhuMahalakshmi Five Insurance.