“There will not be any problems in terms of easy tradability of crossholding shares”

Rastriya Banijya Bank Ltd—a fully state owned bank- has begun the process of divesting its crossholding at Nepal Investment Bank Ltd (NIB) and Nepal Aawas Finance Company Ltd through the open bidding auction. Though the bank was earlier making its efforts to sell the promoter shares of these two institutions in a bulk, it could not succeed in selling on bulk due to the high volume of the shares. Since the central regulatory bank has been piling pressure against the RBB to end the crossholding, the RBB was compelled to offer the shares to the public even in the small quantities through the open bidding. Krishna Prasad Sharma, who is the first CEO of RBB to be appointed through an open competition, took the leadership position of the bank in 2012. A prominent figure in banking sector—CEO Sharma -- had a three decade long career in RBB where is role in implementation of financial sector restructuring program in the bank is appreciated across the banking circle.

ShareSansar sat with him to talk about the process of divesting its crossholding, tradability of the promoter shares, allotment process and the possibility of new buyers of the shares to get the dividends of the NIB announced recently, the changes in the bank since he assumed the leadership and further strategies of the bank:

You have begun the process of divesting the crossholding of the Nepal Investment Bank and Nepal Aawas Finance Company Ltd through the auction. You had even tried to sell those shares in bulk. Can you please explain why it could not be sold out in bulk?

Earlier, we had made efforts to sell the shares in bulk and we published the bid announcement accordingly.  There is around 62 lakh units of share of NIB alone which is very high on volume. Those with whom we were on talks might have also thought about their portfolio management, the plans of selling on bulk did not make much headway.

Later, as the number of people who want to buy shares is increasing in recent days we thought that these shares should go to the public at large. Since a long queue of peoples is seen when the IPO is opened, we thought why not to offer these shares to the public.

The minimum quote price that you have fixed for the NIB is Rs 530. Don’t you think it’s quite high?

The price of the scrips observes up and down in the market. We have fixed the minimum bidding price by evaluating it from various angles. We have tried to maintain utmost transparency for determining the price. A committee comprising joint secretaries of the government and directors of Securities Board of Nepal has fixed the price. RBBL does not have any influence in fixing the price. While you compare the price from the capacity of the NIB to give returns to its shareholders, the price is worthy. Also, one cannot buy the promoter shares in such small quantities, so it is also an opportunity to the small investors.  So I do not think its high price. If compared the capacity of the NIB to offer return, its business volume, strengths, it’s bigger than other commercial banks. We would say the price that we have fixed is relatively low.

But there are concerns among the investors regarding the easy tradability of the promoter shares. What you have to say to quell these confusions?

There is no room for the confusions about the tradability. Nepal Rastra Bank (NRB) has issued the circular (Circular no 10) which states the clear provision in regards to the crossholding. Nabil shares were sold based on that same provision and our shares of NIB will also be traded on the same way. All the crossholding will follow the same course. One should not be confused thinking that Nabil was treated differently while others’ will see separate treatment. The provision on which the NABILP is being traded same would apply to the NIB promoter shares that we are offloading. NIB promoter shares are freely trade-able. There will not be any problem in terms of easy tradability of crossholding shares.  

However, the Monetary Policy provision said that the classification of promoter shares will be ended. Does not it mean that at some point the easy tradability benefit of these shares will also face difficulty?

That is about the future policy which might be introduced later. The Monetary Policy has just given a hint in this aspect. However, currently we are of ‘B’ group shares and the case was similar of the Nabil. If the classification will end, all the promoter shares will be freely tradable. NRB will make separate arrangement for the crossholding which it is doing now. NRB has made a provision which allows the free tradability of the crossholding. I do not think there will be any problem even in the future.


The quantity of the shares is very high. You have already started the process of auctioning. What are your expectations about the bidding and how long it will take for the allotment?

We have already called the bid. Those bidding above 100 units will have to get their shares. We will move according to the principle of the bid. We will conduct allotment once the bidding date closed while the remaining shares will also be allotted in another lot.

Are those investors buying the shares of NIB will get the dividend of the bank?

We plan to transfer the shares before the date of the book closure of the NIB. Since the allotment is planned to be completed before the book closure date, the investors are likely to get the dividend. We are planning in a way that the new buyers will be entitled to the dividend of the NIB.

What would be the price of the shares that you are auctioning if those all are not subscribed in the first lot?

What we think is that the price of the things that we sell in the market should be suitable. We had also fixed the price as Rs 594 for the per unit share of NIB. We made that price because the price at that time was on the same range. The rate went down recently so we also adjusted it to make Rs 530. If the price will go up, we may raise the price or vice versa. We do not have the static policy. It will all depend on market. We are confident that all the shares will be sold out. The price is good and the NIB is very good bank. The investors will make decision wisely.


Now let’s talk about the bank you are leading now. While looking the financial indicators of the bank, it seems impressive. Any plan there to take this state-owned bank to the public?

According to the provision of Banks and Financial Act (BAFIA), the bank is required to make its 30 percent stake to the public. Our net worth was negative until last year so we could not pay our attention toward going public. Once we maintain the capital adequacy ratio as prescribed by the central regulatory bank, we will discuss with the NRB and the government to go into public. Since the NRB in its monetary policy has signaled that the RBB will be made more strong government bank, the discussions will be held on these issues also. This is the issue that is supposed to be decided by the government, the owner of this bank, rather than by us.  

After divesting the crossholding, will the bank be able to maintain the 10 percent of capital adequacy ratio?

After divesting, we will comfortably meet the CAR ratio requirement. The CAR will increase more than the level of 10 percent requirement.

You have collected the deposit of around Rs 100 arba while you were able to float the loans of only Rs 51 arba? Isn’t the difference is too high?

 In the other parts of world where there is very good money market, the banks still sits on the enough liquidity cushions. They maintain the difference 50 to 65 percent. In Nepal’s context, banks are allowed to go up to 70 percent. Currently we are at the level of 55 percent; we are still required to increase it. We have also planned to expand our investment. We cannot reach at the level of 70 percent like other banks as we have to maintain relatively high liquidity as we have to make payment of the government and we have very big network where money gets collected regularly. However, our target is to increase the Credit Deposit ratio to 65 percent.


It is said that government-owned RBB failed to compete with the commercial banks in the cities so it is concentrating itself toward rural areas. Is it true?

Not at all. More than 70 percent of our transactions are in the urban areas. We are competing in the urban areas. There is a big percent of market share of RBB even in Kathmandu. We are bound to move to the rural areas because our presence was there in the past and we had to return due to the conflict. People have wishes that the government owned bank should be back to the rural areas. We are also concentrating there, realizing our responsibility to increase the peoples’ access to banking. Major reason is that the rural areas are still virgin for the banking business where there is not much competition. The rural market has come up as very good scopes due to the remittance flow. Wherever we have reached expanding our business, those branches have come to a break-even within two years. So they are not loss making business for us.

Other private commercial banks are coming up with various modern banking products. Is RBB lacking such products or has it failed on marketing aspect?

It’s not like we have not been able to compete with other commercial banks. This is reflected in the financial statement of the bank published recently. Our asset size has increased by 21 percent, deposit by 19 percent, loan 24 percent and profit 32 percent. This is the highest in the banking business of the country. This was not possible if we did not have the competitive capacity. Whatever it is said, the figures show that the RBB is the best bank. While talking about the modern banking, we do not lack anything what others have. ATM service, ebanking, computerization, SMS banking, branchless banking and other service we are also providing to our clients. We might be lacking the advertisement, but we have every tools of modern banking. Yet, we have many things to do.

What is your business expansion plan?

We have prepared five-year business plan two years ago. We are moving according to that plan. We are now also preparing Vision 2076 for the bank. Where we will be there in next four/five years, the document will make a vision for that. Business expansion, human resource, e-banking and all other aspects will be on that vision. It will be made public very soon.

While looking the financial statement of your bank, the staff expenses have declined significantly. Is this the reason related to voluntary retirement scheme or the central regulatory bank came up tightly on this issue?

One weakness of the RBB is that its staff cost is very high. Compared with other public sector banks, it is low. But compared with other commercial banks, the expenses is very high. Nabil Bank and NIB have their human resource cost of Rs 70/75 crore while RBB’s is Rs 2.34 arba which is very high.  We are now managing it. Rather than increasing the number of staffs, we are focusing to increase the efficiency of staffs and technology. The number of staff has been brought down to 2600 now from 5800 some ten years ago. We do not have any plan to increase the staffs now. Increasing the business volume from the current staffs by increasing their efficiency is more beneficial for us. The staffs of the RBB are very efficient now.  According to our strategic plan, the staffs of the RBB will be most efficient, qualified and youngest in the market by 2074. All the old staff will be retired by that period. The requirement to enter into the RBB bank as staff is better than other banks so we will have the best manpower in the market. We have calculated the age and qualifications of our age. According to our calculations, the RBB will jump to the bank of having all young staff from the current bank which has old staffs. The bank will have highly qualified human resources.


The bank was making its concessional packages and schemes to recover the old and bad loans. To what extent it has it worked for the betterment of the bank’s health?

The bad loans have been already provisioned. The more we recover those bad debts the banks will be benefitted more. Those recovered amount will go to the reserve through income. We have also been prioritizing the recovery of the bad loans. There is a separate recovery department in the bank. We are also amending the recovery manual of the bank. Once it is amended, we will pay more attention towards the recovery of more bad loans. The new loan investment that we have made in last 10 years, its non performing loan is less than 1 percent. The high NPL that we see is older one. Once we will recover it, the balance sheet of the RBB will be clean.

State-owned banks are also accused of being indulged in haphazard lending due to political influence or other reasons and their asset quality is not good.  Has this improved now?

There is complete change on such practices. The competition has gone up unlike the past years when there was monopoly state owned banks. The commercial banks are reaching at the people’s doorsteps and the interest rate has gone down. Also, the policy makers are under the financial discipline. Requesting the banks to complete the client’s work on time is different. There is no influence and pressure to extend loans. Even if there is such pressure, we will reject it because we have to be responsible for all things. We are holding public deposit and we will not move accordingly to what other say. We have to support the government policy and make investment accordingly, but we are not bound to finance on particular project upon any influence.  

Many branches were withdrawn during conflict period and you were in the branch reinstatement drive. What is the progress so far?

We are under immense pressure from the public for the reinstatement of branch offices. There are many commercial banks also. So, why do public want RBB in their places? We have understood this as the public’s attraction toward RBB. We have reinstated 40 branches so far. We have planned to move ahead reinstating 15 branches each year. We have planned to increase our branch offices to 200 by 2074.  The interesting thing is that there are demands of RBB’s branch where there are already branches of other banks. This is because that RBB’s policy is stable of type which helps to make the market more stable. This shows that we are not competitive only, it make us feel sometime that whether we have already become threat to the market.

You are below the interest spread cap that the central bank has fixed. Will you be able to maintain it in the days to come?

We are below 5 percent interest spread rate. We will try to remain below the cap. This has also been possible due to low return in the current money market investment. We will try to maintain it in next year. We will increase the interest rate of the deposit and reduce the rate of loans. As our business volume is surging, the profit will also go up.

There were talks on merger of RBB with Nepal Industrial Development Corporation (NIDC)? Where has the process reached?

The issue of merger with NIDC has come in the budget of the government three years ago. We have completed all the process in this regard. The process was halted as there was proposal from the NIDC. After it was talked in the budget of last year to make it an infrastructure bank, the merger did not make any headway. We have not got any signals for the merger in recent times. If the government brings the program for merger, we are ready for that. We have to follow the government’s instruction. There are no talks on merger in recent days neither it came in the budget of this year.

How do you assess the overall banking business?

The overall banking business profit has grown by 5/6 percent. However, our profit jumped by 32 percent. That is exceptional case. The profit slowed down mainly due to two reasons. One is that there is liquidity surplus in the banking system and the return of the money market is less than one percent. This impacted the profit of the banks. Another is that the NRB introduced the interest spread cap of five percent which compelled the banks to squeeze the interest rate. Another reason can also be added on that: the competition in the market due to liquidity. The banks made investment even by reducing their interest rate substantially. 5/6 percent profit is very low. It should be at least 10 percent.

How do you analyze the overall financial performance of your bank? What are the plans ahead?

All the bad indicators of the bank have almost gone away. NPA which was 62 percent has been brought down to less than 4 percent. We were on the negative net worth by Rs -23 arba which is now positive. Capital adequacy of which was -31 percent which is now 5.6 percent positive. We have to raise it 10 percent and we are working toward maintaining this level by Ashoj end. The number of staffs has been brought down to 2600 from 5800. We have hired new and energetic blood from the market. The investment has also been expanded significantly. We have made the investment of Rs 61 arba which is highest in the market. We are highest in terms of balance sheet size, deposit mobilization as well as lending. The bank has gradually return towards healthy status and stand as a competitive bank. We want to play a leading role in the nation among the banks. RBB has a strategy to involve itself in the economic development of the nation by supporting the price stability, monetary policy of the NRB and fiscal policy of the government. We will move ahead on that strategy in the coming days.