Manoj Goyal is the President of the Development Bankers Association of Nepal (DBAN) and Chief Executive Officer (CEO) of the Clean Energy Development Bank (CEDB). With over 22 years of experience in the banking sector, Goyal worked in various capacities with Nabil Bank Limited, Bank of Kathmandu and NMB.
Goyal says that development banking sector has been operating in a comfortable way.
Goyal talked to Laxman Kafle of The Rising Nepal on various issues concerning the country’s development banking sector. Excerpts:
How is the present scenario of development banks in Nepal?
Most of the development banks in the country have been in a comfortable position financially. However, some of such institutions have been reeling under problems.
We are carrying out banking transactions carefully and following all the laws. Development banks are not weaker than commercial banks. First of all, we need to know about the developments banks. They are functioning from national district-levels. They are offering banking services as per their strategies and the market. Only few of such institutions have faced problems due to their failure to maintain good governance.
During the first six months of the current fiscal year, the problems emerged in the banking sector in the past were resolved gradually. Their deposit collection went up in proportion to that of commercial banks.
A total of 88 development banks are operating in almost 55 districts. At the district level, the banks are working as cooperatives, micro-finance and small financial institutions, while they are financing as commercial banks at the national level.
The banks have collected about Rs. 100 billion as deposit and they have disbursed around Rs. 95 billion as credit. Currently, their reserve capital stands at about Rs.22 billion capital reserves. Out of the total number of development banks, around 14 are in the Kathmandu Valley alone.
Recently, United Development Bank was forced into liquidation. Similar was the fate of Nepal Development Bank. How do you see this?
First of fall, we need to know that banks and financial institutions do not fall in problems by just making banking transactions. There is no any reason for them to face a crisis if they are dedicated to pure banking services alone. Some of the banks have suffered from problems and gone into liquidation because of their failure to maintain good governance. Only those banks whose management, board members and promoters shareholders have ill-intentions have faced problems. In reality, there are problems with particular institutions, but not with the entire development banking sector.
So far as the issues related to United Development Bank and Nepal Development Bank are concerned, they were in problems because of a bad intention on the part of the promoters and board of directors. They were not following the norms of the central bank and they have defamed the entire development banking sector.
Every institution whether it be a development bank or a commercial one, it reels under crises if it fails to maintain good governance and does not respect the guidelines set by the Nepal Rastra Bank (NRB).
The overflow of lending to the real estate and other unproductive sectors has also created problems last year. So, time has come for the banks to review their previous financing systems and learn from the mistakes. At present, transactions in the real estate sector have been blocked due to the halt of investments.
Liquidity in commercial banks has grown significantly. But development banks have not seen such growth in deposit. What are its reasons?
I fully agree with this view. One of the reasons for this is that the banking sector has lost public faith for few years. This was because some of the development banks were in crisis.
However, the banking sector is gradually regaining public confidence. Now we are actively involved in recovering the public faith after learning lesson from the past. We need to do something more to regain public confidence. The critical situation of the two development banks have resulted in loss of image of this sector. But it is true that the development banks are as strong as the commercial banks.
NRB has encouraged banks to go for merger and acquisition. How have you taken this policy?
Merger and acquisition is a positive directive. This policy has opened doors for those institutions who really feel it is necessary for them to go merger in order to enhance their capacities and capitals. As the number of institutions is increasing, it would be easier for the central bank to supervise and monitor them after getting merged. So, the merger is appropriate. Given the current capital flow, the country may not be able to achieve 8-9 per cent economic growth. So, the merger is necessary to increase investments and it can be a drive for the business. As far as the development banks are concerned, there is no any need for the development banks to go for merger. The NRB should not implement its policy on merger by taking all the banks and financial institutions in a single basket.
The government has instructed banks to increase their portfolio in agriculture and tourism to 20 per cent by 2014. What is your opinion regarding this?
I take this positively. This directive has been issued in order to make the banks to invest in productive sectors for the country’s economic development. However, we should think of possible risks, security and returns before investing money in particular sectors.
Prior to investing in agriculture and tourism, the banks should do a lot of homework. However, this is essential. Now, the banks and financial institutions are not in a position to increase their investments massively in these sectors because of lack of sufficient preparations as well as the facilities offered by the government. Currently, the development banks have invested around 3-4 per cent of their total credits in the agriculture sector. But there is no any problem for the banks to increase investments up to 10 per cent investment if the government facilitates them. The banks are also looking for new investment areas.
Is there any programme of the DBAN for the Nepal Investment Year?
We have planned to invest mutually for generating around 100-MW electricity in the next five years. As small banks, we have committed to investing in this productive sector. This is certainly a positive initiative for the government and the Investment Year. Despite being a short campaign, this will be attracting both domestic and foreign investments. We are ready to invest and increase the access of the banking services. We are ready to invest much in potential sectors, but the government must facilitate us.
The country has witnessed a mushrooming growth in the number of development banks for the last few years. How will they sustain?
In my opinion, they will be able to survive. The banks enhance their capacity and capital as the market grows. However, there should be more economic activities for the banks to sustain.
How do you see the central bank’s policies towards development banks?
The policies of the NRB are the same for both the development banks and commercial banks. But the scope of development banks is limited as compared to commercial banks.
Supervision and monitoring part of the central bank has been more effective for the last two years. Earlier, there were many weaknesses.
Development banks have more important roles to play in the country’s development than that of commercial banks. But the NRB looks at the banks only through single perspective-- small and big institutions.
What is important is that the policies should be relevant and effective. The NRB should classify the banks into A, B and C on the basis of the nature of their work.
Earlier, the central bank had adopted the policy of controlling investments in the real estate sector. That was a corrective way of the central bank because banks and financial institutions were investing a huge amount of money in the real estate sector. They were eager to make a lot of profits in a short period.
Finally, would you like to tell us briefly about your bank, please?
Clean Energy Development Bank is in a comfortable position. This is financially strong and sound. Its deposits stand at about 4.22 billion while it disbursed around Rs. 4 billion as loans. Its paid-up capital is around Rs. 1,080 million.
The bank has providing banking services through its eight branches. We always pay due attention to good governance and strictly follow the norms and directives of the central bank.