To the extent required we will definitely opt for issuance of bonus share

Kumari Bank limited does not need an introduction to those involved in the financial and capital market of the country. ShareSansar talked to its Chief Executive Officer Uday K. Upadhyay, who has an extensive experience in the banking field, about the challenges and prospects for the commercial bank. We also inquired about its upcoming AGM and dividends it is planning for the last fiscal year. Check it out:

The banking system faces surplus liquidity for quite some time. How are you tackling the situation?

Since the onset of this fiscal year surplus liquidity in the banking system has created major challenges for all. With higher growth in deposit as compared to lending excesses in the banking system has been rising constantly. Even with large tax payments of institutions to government the current excess in the banking system is estimated to stands at around NPR 40 Bio. to NPR 50 Bio. When we started this fiscal year the excess liquidity in the banking system stood at around NPR 75 Bio. Although we have seen some reduction on the excess liquidity, the situation does not seem to be improving as government expenditure seasonality factor will take effect in coming months thereby increasing the excess liquidity in the market.

Due to unavailability of investment avenues and low return on government securities Financial Institution mainly commercial banks has been hit hard in terms of return on these excess funds. At this point in time managing the cost of funds by lowering the interest rate to boost the demand for loans and advances is our only option to reduce the impact of excess liquidity. Unless demand for loans and advances is seen, the surplus liquidity in the banking system is here to stay. However we are hopeful l with the formation of new government economic activities will increase resulting in higher demand for loans and advances going forward.

The bank began the merger process before most other commercial banks, but the merger has not materialized yet. Why is it taking so long?

Merger is a very tricky process. Merging for just the sake of increasing the capital base will not add value to any institution. When we are merging two or more institution we have to be clear on how we can derive synergy from the process. There are lots of challenges in merging institution, we are just not merging the books we are merging the people, the culture as well. Hence utmost care is required to choose the right partner whereby sustainable growth is also attained from the process. We are still looking for the right partner to merge. Once we identify the right partner whereby we can attain positive synergy the conclusion of the process will not take too long.

The central bank is coming up with acquisition policy. Are you thinking along that line rather than a merger at this point?

As I said earlier, merger or acquisition whatever the process synergy needs to be created in various grounds. If we feel that acquisition will create more synergy that merger than we will certainly opt for the later one. But this all depends on how we can achieve synergy through the process.

What is your take on BASEL-III? Will it facilitate the growth of banking sector in the country?

BASEL III like its predecessor is an approach which limits how much a financial institution can leverage it books. Most of the crisis relating to financial institution emerges out of over leveraging of its books. In that note definitely the implementation of BASEL III will help in minimizing risk on banking books by controlling the ability to leverage. In addition BASEL III also focuses on Stress Testing and market liquidity risk. This will help financial institution to identify the risk in their books and measures to mitigate the same. Hence I sincerely believe that the implementation of BASEL II will aid the overall development of the banking sector and the country as whole. However the thing we need to understand is that how well the local financial institution will be able to the regulation of the BSEL III requirement. If we plan to implement exactly what the BASEL III recommends, this will not attain the desired result we will have to carefully analyze the context of BASEL III based on our local market and if need be modify the requirements to suite the local market.

Kumari bank is one of the handfuls of banks yet to announce dividend as well as it AGM for the last fiscal year. When can the shareholders expect the good news- though there is a rumor in the market that the bank is planning to offer around 30 percent dividend?

As an institution our major focus will always be to provide attractive returns to our shareholders. In facts our vision also clearly states maximizing value to our shareholders. Thus we are constantly trying to increase the returns to our shareholder by fulfilling our responsibility towards our other stakeholders as well. In addition we believe in providing a sustainable return to our shareholders and we will always be focused on this.

You have posted a reasonable profit in the last fiscal year. Can the shareholders expect better dividend than the previous year? Can they expect more of bonus shares in that you also need to raise your paid up to Rs 2 arab by the end of this fiscal year?

To the extent required we will definitely opt for issuance of bonus share. And as I said earlier we will always strive towards providing attractive sustainable returns to our shareholders based on our profitability and need for the institution.

Is the latest monetary policy that NRB has come up with favorable for the banking sector?

Monetary policy is a guiding document for all the financial institutions. The favorability of the monetary policy for the banking community depends on the implementation of the same. Our latest monetary policy adopted a stance of lowering the interest rate to boost demand for loans and advance thereby creating economic activities and jobs growth. But have we been able to attain that. Yes we have seen the lowering of Interest rates in the market but has this created the end result we have been looking for via the monetary policy is a big question. We will need to review what have been achieved. We have not been able to control the inflation and the return to our depositors is way below the inflation rate. This has reduced the purchasing power of end consumer and further I feel that we have not been able to achieve the boost in economic activities we have hoped through this monetary policy. Thus in absence of growth in economic activities this monetary policy is not conducive for the banking sector. However wit
h the formation of new government we are hopeful there will be increase in economic activities which will boost the overall growth of the country. If we are able to achieve this than the policy adopted by the central bank will definitely be conducive to the entire financial Institutions.

How much opportunity do you see in the stock market when it comes to diversification of portfolio?

If we look at our stock market it is predominated by Financial Institution. However in recent years we have seen increasing participation in the stock market from other sectors as well. We do have some levels of presence of Manufacturing companies, Hydropower’s amongst others. But if we compare our stock market to that of our neighboring countries we can say that the level of diversification in our market is very low compared to other markets. But we also need to understand that our Stock market is relatively new compared to our counterparts. Thus it will take some time for the growth in the stock market to excite us. As long as we have major companies looking to satisfy their expansion plan via borrowing from Financial Institution the diversification in the stock market will be limited. Big Business houses need to float shares or secondary capital instruments to finance their growth. Once this cycle starts there will be lot of opportunities to diversify in the stock market.