Current fiscal year will be better for banks

Arun Kumar Ahluwalia is the CEO of Everest Bank Ltd since July 2013. Prior to EBL, he was working as Deputy General Manager at India-based Punjab National Bank. CEO Ahluwalia has three-decade long experience in the banking sector and has key expertise in credit and recovery. Punjab National Bank holds 20 percent stake in the EBL which has been serving its clients through 53 branches, 80 ATMs, 5 extension counters, 24 revenue collection counters in Nepal and a representative office in New Delhi. Sagar Ghimire of Republica recently talked with CEO Ahluwalia about the financial performance of the bank, its plan to raise capital, liquidity problems of the banking industry and role of Nepal Rastra Bank (NRB), among other issues. Excerpt:

How do you assess the bank´s performance in the last fiscal year 2013/14 as well as the first half of the current fiscal year?

Last fiscal year was the year when there was a lot of liquidity in the market which hit all the banks. Deposit´s interest rate went slightly down. Banks were also trying to bring down their interest rate for the credit in tune with the market. There was tight competition between the banks as it always happens when there is excessive liquidity in the market. While talking about the first half of the current fiscal year, since the banks are already prepared and the margins are now set, profits are picking up lately. I believe that profit will be better in most of the banks at the end of this year. Most of the banks are already having their Credit Deposit (CD) Ratio of 78/79 percent this year. This shows that liquidity situation is also stabilizing now. So, the current fiscal year will be better than the last fiscal year.

Nepal has been witnessing the liquidity swing in recent years. What are the reasons for such fluctuations in the liquidity situation?

It happens in most of the economies: sometime surplus and sometime crunch. Nepal´s economy is largely dependent in the remittance flow. However, the value of US dollar in comparison to Nepal´s currency went very high last year. So the conversion rate was also very high which led to the rise of the remittance flow. When remittance comes in, either you consume it or you invest it somewhere. The money ultimately comes into the banking channel. Apparently, it was not utilized, but remained in the bank as the deposit. Secondly, the liquidity situation also depends on the government´s spending. The government under-spending also affects the banks. The unspent money lies idle somewhere in the system. The spending also helps to boost the investment in the country. Liquidity is under control this year. We can hope for better situation this year compared to the last year.

NRB is encouraging the bank and financial institutions to soar up their paid-up capital and Basel III is also said to be enforced gradually. What are the plans of EBL to raise its capital?

Basel III is not implemented yet, however it is expected to be enforced later. We will be in tune with whatever required by the central bank. We have to garner more capital once Basel II norms are in place which we will do it.

NRB is coming up with various regulatory measures like mandatory deprived and productive sector lending, interest rate spread cap and recent curb on some charges for the banks, among others. How do you see the roles of the NRB?

The regulator has to see how the things are moving in the system. Banks are the basic lever for the economic growth in any country. In Nepal, the number of the banks is large. If the central bank cannot channelize through the banks whatever it envisages for the growth of the economy, how the growth will take place? The central bank is pursuing the policy by putting the interest of the depositors at its priority. It is acting as the watchdog for the borrowers also. The measures taken by NRB are reasonable and prudent from its part.

When the directive of such lending comes, the banks will also go into those areas and over a period of time it becomes a habit. The central bank is doing some micromanagement to keep everything in check. Regarding interest spread cap, banks were dependent on one source of interest income. The spread cap provision has made us to look other income avenues also. I don´t say that the interest spread is the only one way or the reason that banks can make profit. Obviously, the NRB has to consider the interest of every stakeholder including the borrower, depositor and lender.

There is not much financing from the part of banks to large-scale projects. Is it because of the liquidity mismatch, lack of demand or any other structural changes?

It´s not like banks are reluctant to finance the large-scale projects. Infrastructure projects are not coming much. The infrastructure projects cannot be carried out on the sole financing of the banks. There has to be a public sector involvement, spending from the government and banks can participate on that. As far as other lending is concerned, banks are ready to finance once borrowers are there to seek the loans. Regarding hydropower project financing, banks are doing it currently as much as they can.

What are further notable plans and strategies of the bank?

Everest Bank is the bank of masses. It´s not limited to a certain section of the society. Right from the inception, the idea was to be a mass-based bank. We are one of the banks having the highest number of retail depositors besides corporate financing. The bank was probably first to introduce housing loans in Nepal. The bank will further expand its retail base clients in the days to come. We are sure the future lies in the retail banking. We also want to do more retail financing so that our portfolio is also diversified. We will come up regularly with new schemes to cater the demands of our clients.

Source: Republica