NRB seeks convincing biz plan from RBB

KATHMADU, JAN 14 -

Nepal Rastra Bank (NRB) has sought a convincing long-term business plan from Rastriya Banijya Bank (RBB), warning that the failure to do so would invite similar treatment to the state-owned bank that other private sector bank s should go through in the case their capital adequacy remains poor.

“We had treated the bank separately until last year as it was under the financial reform programme,” said Maha Prasad Adhikari, deputy governor of the NRB. “With the expiry of the reform programme, we have no other option but to take normal course of action.”

He said that the central bank sought a government approved comprehensive business plan to prevent an NRB action against the country’s largest bank . There had been discussion on the issue at the high-level Financial Sector Coordination Committee headed by finance minister on Sunday.

“There has been agreement that the RBB will submit its business plan to the Finance Ministry for approval. The central bank will then monitor activities based on that strategy,” said Adhikari.

Despite progress in recapitalisation, the NRB is concerned about RBB’s low business expansion. “Its interest income has not been sufficient even to sustain its operating cost,” said Adhikari.  

The RBB is preparing a five-year strategic business plan following the central bank ’s demand. The RBB has drafted the plan which has aimed to double its both deposit and lending. The bank ’s lending currently stands at Rs 42 billion which it aims to raise by more than double to Rs 86 billion.

Likewise, it aims to increase its deposits to Rs 146 billion from current Rs 87 billion and bring down non-performing loan from the current 7 percent down to 2 percent. The plan also includes expanding branches and sourcing bank ing job to certain agency on contract in areas where it cannot reach.

According to RBB CEO Krishna Prasad Sharma, the bank would present the draft to the board next week for approval. He said that the bank would achieve increased business with the existing human resources—the bank currently employees 2,600.

He also said that the bank was conducting due diligence to find out its actual status and carrying out audit of its system through external experts.

The bank ’s financial health has improved following a recapitalisation plan under which the government has injected Rs 4.32 billion. The bank ’s capital has for the first time

turned positive by Rs 500 million after the government allowed it to convert special drawing rights (SDR) worth Rs 3 billion into domestic currency.  

The RBB had gone into a tailspin due to huge loan defaults. In July 2003, a diagnostic review of its financial status had detected a negative net worth of Rs 22.39 billion, with its non-performing loans accounting above 60 percent of the total loans.

Subsequently, the government implemented the Financial Sector Reform Programme at the RBB by hiring a foreign management team with assistance from the World Bank. Though the scheme failed to restore RBB to good health and privatise it as expected, it did help to drastically reduce the bank ’s non-performing loans. After the programme ended in December 2011, the government appointed a new CEO at RBB in January 2012 through open competition.

Source: The Kathmandu Post