In case of Melamchi Nepali Official Should be prosecuted:  Pandey

Chartered Account (CA) Prithibhi Bhahadur Pandey is Chairperson of Nepal Investment Bank. He has worked in Nepal Rashtra Bank for 13 years. Pandey has led government owned Rashtriya Banijya Bank for two years. He also has worked with International Monetary Fund (IMF).

With all these above mentioned experience Pandey entered in private sector banking with the establishment of Himalayan bank. After 10 years, he started Nepal Investment Bank as a great challenge of his life and proved himself as a successful banker.

Pandey is worried about both the quality and quantity of commercial banks of Nepal. He agrees with the fact that most of the banker has taken banking as profitable business. He remembers the day when he shared his idea of opening a bank and some of his friends have asked him ‘are you in right mind?’ has recently talked with Pandey about the current situation of Nepalese Banking sector. Here is the edited extract of the talk:

Is Nepali banking sector assimilates the basic value of banking, what do you say?

If we say about overall banking scenario then we have to go on number. There was 3/4 bank in initial phase. Later there was many and now has shrunk on 28 commercial bank. The number of banks is more than enough if we compare with the population of Nepal which is 28 million. We need quality not quantity. Only 10 good banks can serve this nation.

But, is it possible to reduce the number in 10?

Yes, it is. But, the condition is that these banks have to be ready for every corner of the nation. I get the latest governors are with this intention. But, we didn’t get expected result. The central bank was expecting for merger or acquisition. At last we get only few banks choose the option of merger. Most of the banks offer bonus share and the shareholders also became happy with this decision. Now the share value is in right point so it is good time to merge any banks.

 Do you think the banks will become ready to go the rural area?
The big banks will ready to go without any hesitation. Just imagine, if a bank has 200 branches. And, among them 50 branches unable to earn enough to run itself even then  there will not problems because the remaining 150 branches can earn good to show profit on entire balance sheet.

But, almost all banks are in profit so is there any concert reason for reducing the number?  

In recent past, there was over value of the share of Bank. And, at that time price-earning ratio was up to 35/40 percent. But, now we are getting only 15. We are only looking on the volume of profit but not aware about the price-earing rate. Unless we reduce the number of bank, we can’t get appreciable profit.

Do you agree on the opinion that the decision of investing on bank was right?

I still remember the moment when I share my idea of opening a bank at that time some of my friends said, “are you in right mind?” At that time banking was not going throw a good period. For me profit was never-ever motivating factor. Of course It is important but just for profit was not my motive. Just look for today, I am chairman of this bank but neither can I sell nor buy more share of this bank. Even I can’t mortgage the value of my portfolio. If I was motivated by money then I shouldn’t be here as a chairman.

Some people used to ask me whether I suggest them to invest on bank. But my answer was you have to think twice before investing on bank. If you are in search of social dignity and credibility then yes, it is good area for that. With the card of DIRCTOR of bank the area become broad. Banking is a prestigious business. You can’t get return.

Even today besides few banks, return and equity is very poor. If we go throw the statistics of last four years, banks’ overall return is going down. It is so because NRB forcing us to go in different areas. It is not bad. It is our responsible as well. But, at the same time it is expensive for us. It reduces the profit. If I am in any other business I look on my benchmark at least 20 percent profit.

Is it the reason for what some of the banks on joint venture are going back?

 Let’s talk about Standard Chartered bank. They are great bank. But, in context of Nepal they has invested very tiny amount in the beginning. They are getting good now. In case of my bank, I am getting below 15 percent return in these days. If I take out the money from here and invest in alternative area then it is sure that I will get more than 40 percent. If you are a smart businessman then you have to think in this way. The same thing is happening in case of joint venture as well. If you want to know about the case of Indosuez Bank then I want to make you clear. At that time they were taking Nepal as risk zone. For them the risk was NEPAL. No only Nepal in fact, the whole South Asia was risk Zone for them. So, they withdrew not only from Nepal but from Bangladesh, SriLanka and Pakistan.  Talking about risk, what do agree that the recent technology also a great risk?

I don’t see any sector that is risk-free.  We have to agree that there is always risk. And, the subject of technology is very hard to know. We have seen that the central bank of Bangladesh has been hacked. I think, all banks are aware about it. In my case, I have asked my IT personnel not to compromise on security.

 It is said that currently the banks are suffering from liquidity crisis, what is the reason?

Genesis of this problem is that the paid off capital has increased by Central Bank. Banks like NIBL were aware about it and were prepared to handle the situation. So, we issued right share in the ratio of 2:1 and 1:1. I had experienced of working on the central bank so I could sense it. We were going consistently up. But several banks thought that we can go by just giving bonus. So, they couldn’t grow easily.

At last they had to invest more capital which increased equity. Ultimately the return decreased. The CEO of the banks started to feel pressure because they have to generate more profit. For profit they have to increase landing which demands huge deposit.

We all know there are few sources of big deposit. Here pure economics works. Demand increased, the supply is limited. Many banks nearly excessed the CCD ratio. Whenever the feel pressure on CCD ratio they run to collect deposit. By this way the liquidity crisis seemed.

The Business community always blamed the banks for increasing the interest rate, why do you people increase it? 
If you were a businessman what do you do? You says, interest rate to come down. So, I don’t blame them. In fact, for them banking is a small part of business. If I were a businessman I of course do the same. Me as a banker I want to interest rate to be higher. But, again in my point of view, interest rate isn’t subject of dictation. You have to understand market forces, you can’t control it. Did you hear any good comment by businessman when interest rate was low? They are businessmen, they goes together, forms a group and pressurize the political leader. That’s call lobbying.

Is there any possibility of huge investment by Nepali banks on mega project?

Why not? There is. Presently we have opportunity in hydropower. We are working together in mega projects. Any single bank can’t take risk. I agree that in such a long term lending there is possibility of mismatch. We haven’t any specialized bank so in 2007 I was active to stabilized infrastructure bank. But, the global recession of 2008 disturb on it.

 It is heard that a huge amount of NIBL also have stuck on Melamchi Project ?

 I think, the media should analyze why CMC have withdrew from Melamchi ? Don’t put the thing on the bank. To start work with CMC we have finalize a first class bank of Italy as counter guarantor. Some of the amount we have already got back. CMC is a multi-national company. At that time the rating of this company was high.  They were doing at their best hare and even the line minister was quite happy with their performance. As a journalist you can analyze. I didn’t get any analysis from media.

I came to know that CMC couldn’t talk to the media as per their agreement with government of Nepal. On the other hand they repeatedly asked for money with the government but didn’t get. They even went to the mediating committee. The committee asked to the government to issue the amount demanded by CMC. But, again they didn’t provide it. So, they were compelled to go back.

But here spread a fake discourse that CMC has bankrupted. It isn’t a fact. Yes, it was down rated. We were also worried. I have heard that they are restructuring the company. But, again the question is that why do they went back while it was only three months to work here?

The real core issue is that how they were treated? Yes, they took the decision of termination while they didn’t get money. They have the right. We have to discuss about the approach of government of Nepal. We have to go to court. But, the act of seizing the passport is not good. It is totally illegal, unconstitutional even for our country. The people who gave such order should be prosecuted.   Without court order, how can they do it?