Banking sector faces ethical question as ex-regulators rush to join private banks
KATHMANDU, Nov 28:
Senior Nepal Rastra Bank (NRB) officials joining private banks following their retirement from the central bank is slowly become a trend in the country´s financial system. Though there is no legal provision that bars former central bank employees from accepting job offers from licensed banks and financial institutions (BFIs), which they used to supervise or regulate, experts believe it as an ethical deviation of individuals rather than a legal offense.
As NRB do not keep tabs on what its officials are doing following their retirement, it is difficult to find out how many former NRB employees are currently working with BFIs. But a snap survey conducted by Republica shows that over two dozen BFIs have retained former NRB officials in senior executive posts. Many former officials of NRB have secured lucrative posts in the boardroom of the BFIs, giving policy direction to their respective companies.
Banks and Financial Institutions Act 2006 (BAFIA) bars NRB Governor, Deputy-Governor or Special Class employees from taking a job in the board of BFIs within a year of their retirement. The law, however, does not bar them from assuming the post of chief executive officer in BFIs.
For Bhaskar Mani Gnawali, former executive director of NRB who recently took retirement, it is all about the individual morality. “However, I think a regulator should not take any jobs in BFIs,” he added.
Experts say serious conflict of interest may emerge if an ex-regulator serves for any institution that s/he supervised and monitored earlier, posing challenge to governance.
"Former NRB officials have access to confidential documents of the central regulatory bank. They might take undue advantage from such documents while working for the private bank,” a senior banker, told Republica, requesting anonymity.
Deficiencies in banking laws have been giving a leeway for ex-officials of NRB to secure jobs in the private banks following their retirement. The trend also does not bode well for maintaining governance in the banking business.
“There is also a risk that some central bankers may derelict in their duties if there is no restriction for them in joining BFIs after their retirement. For example, if a regulator goes for the inspection of any bank and found serious lapse, s/he may shy away from taking action out of greed or offers made by the bank,” the banker said. “If an official makes up his mind to work with a BFI in the post-retirement period, s/he may try to misuse authority to secure the job.”
Critics provide the example of H&B Development Bank for the apparent show of conflict of interest when the former deputy director of NRB Gyanu Krishna Adhikari, who was working with the Development Bank Supervision Department, was appointed the CEO of H&B immediately after his retirement. Interestingly, Adhikari was the chief of a three-member team that was deputed at the bank following the Class ´B´ bank´s takeover by the central bank. NRB had taken over the bank following the good-for-payment check scam worth Rs 801 million. Adhikari got retirement while he was deputed at H&B.
NRB eventually handed over the reins of the bank to the promoters after observing marked improvement in the bank´s financial health under Adhikari´s leadership. And after a fortnight of the handover, Adhikari joined H&B.
"The bank appointed me to the post as they felt I can improve the bank´s condition," Adhikari told Republica. He rejected suggestions that his appointment could give rise to conflict of interest. "I performed by duties at the central bank maintaining utmost professional integrity. This will be the case at H&B too. As I was not looking at H&B while working with NRB, there is no possibility of conflict of interest arising," he added.
Likewise, if an NRB official, who is privy to the strategies, business plans, challenges, weaknesses and other internal issues of many banks, join a BFI, it could give undue advantage to the bank that he works for. This could also pose business and other strategic threats to other BFIs.
Suryanath Upadhyay, former chief of the Commission for the Investigation of Abuse of Authority (CIAA), shares similar views. “The trend of former central banker joining the banks that they regulate is a very serious issue. Any employees of NRB should not be allowed to work in any of BFIs, which comes under the supervisory ambit of NRB, for certain years,” he opined.
Dissatisfied with the trend of its senior officials joining private BFIs following their retirement, the central bank is now mulling over imposing certain restrictions for them. “We are concerned as well as uncomfortable with the ex-regulators taking up jobs in licensed BFIs,” NRB Spokesperson Manmohan Shrestha told Republica. “We are looking to introduce a provision in the upcoming amendment to BAFIA to restrict at least governor and deputy governors and other senior officials from assuming jobs in BFIs for certain years.”
However, some say the senior officials of NRB joining private banks following their retirement should not be taken as a big deal. "There should not be a problem if some banks wish to utilize the long experience of central bankers by offering him/her good incentives. It is not a conflict of interest,” NRB Deputy Governor Gopal Prasad Kaphle, told Republica. “Individuals, who have worked with the regulatory body, always look forward to ensure financial discipline because they understand the value of compliance very well,” he added. Kaphle further said the central regulatory bank, which runs in a system, does not spare any defiant bankers just because he was working with the NRB at some point.
Kaphle, however, was quick to underscore the need for some gap after the retirement and assumption of post in the BFIs for top level NRB officials so that the line between the regulators and bankers do not become blur.
Source: Republica
