Our focus will be on increasing lending

Rewat Bahadur Karki is the chairman of state-owned Rastriya Banijya Bank Ltd (RBBL). Prior to this, he served as the Director of Nepal Rastra Bank (NRB), CEO of Nepal Stock Exchange (Nepse) and Executive Director of the Mid-Western Rural Development Bank. He has also worked as the Economic Advisor to the Executive Director of International Monetary Fund (IMF) and Economist at the Bank of Namibia. Karki recently submitted a 10-point reform proposal to the government, which, among others, includes issuing 30 percent of the bank´s shares to public. Sagar Ghimire of Republica talked to Karki on reform works initiated by him in RBBL and other financial issues. Excerpts:

How is the current financial position of RBBL?

The bank is on the path of progress. It was on a critical situation until 2002/2003 with negative net worth of around Rs 23 billion. The situation is gradually improving after the implementation of Financial Sector Reform Program back in 2002. Now, the bank is earning profit to the tune of Rs 1 billion annually. We have also enhanced the capacity of employees and managed to achieve improvements in other some key fronts.

There still are a lot of challenges. NRB is pressing us to float at least 30 percent of our shares to public. We are also moving ahead with a plan to issue at least 30 percent of our shares through initial public offering (IPO). The bank is yet to maintain Capital Adequacy Ratio (CAR) of 11 percent. We will comfortably maintain the required CAR after divesting our crossholdings in Nepal Investment Bank Ltd (NIBL) and Nepal Aawas Finance Company Ltd (NABB) by mid-January. After that, we will start the process of launching IPO after getting approval of the finance ministry.

Do you think government will allow RBBL to float IPO?

The current regulation of the Banks and Financial Institutions Act 2006 requires every BFI to float at least 30 percent shares to the public. But the existing law does not imagine a state-owned bank. We have started talks with the government for going public. I think the government will allow the bank to issue 30 percent shares to the public as required by BAFIA 2006.

Please tell us more about your plan to divest crossholdings in NIBL.

We could not divest all our shares in NIBL in the earlier auction due to some technical reasons. I think we failed to persuade interested investors that they are entitled to dividends on the eve of the book closure date of the bank. This time we have reduced the minimum bidding price to Rs 400 per unit by considering various factors like dividend adjustment. We have set the price a bit lower to attract mass investors in the bidding process. Likewise, the NIBL is a very good bank which offers handsome dividend each year. We also hope that a large number of institutional investors will also participate in the bidding process this time. We are confident that all the shares will be subscribed.
After divestment of our crossholdings, we will be able to maintain CAR comfortably.

It is said RBBL lags behind other banks in terms of providing modern banking services in this era of digital banking. What are your plans to make the bank more competitive?

We are planning to introduce a reform package to make the bank more competitive. Though we passed through a critical situation in the past, we have been following other banks closely in terms of competition and using modern banking services accordingly. We are already offering modern banking services like ABBS to our clients. There are pros and cons of being a state-owned bank. Being a government-owned bank, we have huge credibility among. However, there is also a perception that services of government-owned agencies are traditional.

We will focus on provide client-oriented services. As far as investment of the bank is concerned, we have authorized our branch offices to sanction loans on their prerogative. We hope this will help to increase our lending. As we have the highest deposit mobilization (Rs 107 billion), increasing lending is also a major challenge. Similarly, our focus will also be on debt recovery. The recovery process of bad debts has been halted for the past one and half years. But we are already working on a procedure to recover such loans.

Source: Republica