Four RDBs technically insolvent

By Bijaya Ghimire & Bal Krishna Gyawali 

KATHMANDU, May 21 - Four of the five Rural Development Banks (Grameen Bikas Bank - RDB), formed almost seven years back jointly by the government, Nepal Rastra Bank (NRB) and private commercial banks to extend micro-credit at the grassroots level, are technically insolvent, latest financial report reveals.

The findings are those of a committee that was formed by the NRB to study the financial position of the RDBs. According to the report prepared by the committee, managerial weaknesses and political interference, in addition to low debt recovery, nil loan provisioning and overstaffing, among others, are the main reasons that led the banks to insolvency.

According to a source at the NRB, four of the five RDBs, as of mid-July 2000, had cumulative losses of over Rs 137 million. The report reveals that out of the total capital of Rs 60 million of the Eastern Regional RDB, the first to be set up, Rs 57 million had already eroded by mid-July 2000. Similarly, of the total Rs 58.5 million capital, Far Western RDB had washed out Rs 5.38 million. "The present losses would be far higher. If immediate reforms are not initiated, all RDBs would better be closed," the source said.

Similarly, Mid Western RDB and Central RDB had eroded its capital by Rs 14.4 million and Rs 9.91 million respectively. Though the Western RDB has been showing profits to date, the reason for such, says another high level NRB source, is the manipulation of accounts taking advantage of the weak policies.

The report has pointed that the RDBs need structural reforms. Providing an example of sheer negligence and irresponsibility, the report points that within a period of four years, the term period for a management team comprising of eight members each, RDBs have had as many as 21 different members in the Board of Directors.

To prevent the collapse of the banks, mergers or capital restructuring or privatization is a must, the report has stressed. As per the report’s suggestions, the NRB is working to merge the Far Western and Mid-Western RDBs. The report has further stressed that a committee needs to be constituted for monitoring purposes, in addition to capital injection.

Though the RDBs tried to obtain credit from commercial banks, all commercial banks have refused to inject additional funds for operation. The previous credit from the commercial banks have already crossed over a billion rupees. Commercial banks had granted credit merely to fulfill the NRB’s condition that requires them to invest at least 12 per cent of their total loan portfolio in priority sector and three per cent of it to the deprived class.

And even the Rural Micro-finance Development Center (RMDC), which was formed with the objectives of extending financial assistance to weak banks and financial institutions, refused to extend credit to the RDBs, despite repeated requests, given their weak financial position.

Executive Director of RMDC Shankar Man Shrestha said that RMDC extends credit based upon the overall financial position, management and possibility of repayment. However, he said that the RMDC would not be able to finance the RDBs despite RMDC’s willingness to extend credit to almost 50 financial institutions in the coming fiscal year.

"We cannot give credit to institutions having negative net worth," he clarified, asserting his refusal to finance the RDBs. It was only after commercial banks refused to extend loans to RDBs that the later requested the RMDC for financial support. As per sources, the NRB has requested the Ministry of Finance to allocate funds of over Rs 200 million in the coming budget for capital restructuring of the RDBs.

The financial insolvency of the RDBs have come to light hardly a year after two of the biggest commercial banks of the country, namely Rastriya Banijya Bank and Nepal Bank Limited, were declared technically insolvent. The bankruptcy of the RDBs is a major blow to the government’s financial sector reforms, which was initiated in 1992.

Govt to form permanent ASB: AG

KATHMANDU, May 21(PR) - Auditor General Bishnu Bahadur KC has said that the government is planning to constitute permanent Accounting Standard Board (ASB) by amending the existing Nepal Chartered Accountants Act, in order to upgrade the auditing system on a par with international standard.

With the opening up of global economy throughout the world, it has become imperative to have uniformity in reporting the activities of the private and public economic business units and government organizations. "However, despite the guidelines of the central bank, the banking and financial sectors have not been able to practice uniform accounting system," he said.

He was speaking at a two-day seminar on US Generally Accepted Accounting Principles (GAAP) & International Accounting Systems, jointly organized by the Kathmandu Centre of Cost Accountants and Institute of Cost and Works, India here Monday.

As the GAAP attempt to attain transparency in the reporting of economic activities, the International Accounting Standards and GAAP are gaining increasing acceptance in the European Commission, the Auditor General noted.

As global diversification of portfolio has become an important issue of fund management with more and more countries accepting capital account convertibility or restricted fund flow on capital account, a uniform GAAP across the world would have helped increase understandability of the financial statements, he added.

N Krishnaswamy, an account expert, said that as more foreign investments are pouring in and they need proper corporate accounting, the accounting system of the recipient countries needs to comply with accepted international accounting standard. Some 20 Nepali and Indian accountants are participating in the seminar.

Sustainable dev of highland agriculture stressed

Post Report 

KATHMANDU, May 21 - Experts participating in a four-day international symposium on highland agriculture have emphasized upon the need to find ways and means for productive and sustainable use of marginal lands of Hind-Kush Himayan Range.

Since majorities of 140 million people of this region are agriculture based, the meet unanimously viewed that the main challenge of planners, policy makers and farmers of this region is to harness the unutilized resources of the region and reduce widespread and deepening poverty in the region.

Inaugurating the symposium organized by International Center for Integrated Mountain Development (ICIMOD) Monday, Minister for Agriculture and Cooperatives Chakra Prasad Bastola highlighted the need of reengineering mountain agriculture into economically viable, environmentally sound and socially compatible pursuit.

"Promotion of agricultural products by utilizing specific mountain comparative advantages to uplift the income and living standards of rural people is the a major challenge of the nations in this region," said he.

The major challenge in expanding mountain agriculture, he says is "to harness several advantageous attributes of mountain environment empowered particularly by amazing diversity and associated commercial niches."

Presenting a keynote address on "Mountain Agriculture as Peasant Perseverance" Dr Harka Gurung, planner and geographer highlighted the need to improve mountain agriculture so as to help to reduce poverty and environmental degradation.

He also spoke on the need to device practical solutions built on the chemistry of local knowledge and wider experience.

Dr Tej Pratap, Vice-chancellor of Himanchal Agriculture University, India presenting another keynote, spoke about utilization of untapped resource of mountain agriculture.

"Mountain agriculture has become the victims of marginal land, inappropriate technology, inadequate policy and lack of market," he said. "optimum utilization of marginal lands is the key challenge for planners, policy makers and farmers."

Delivering a welcome speech Dr J. Gabriel Campbell, Director General of ICIMOD highlighted the involvement of ICIMOD in tackling the integrated nature of mountain agriculture.

He also informed the gathering that ICIMOD have recognized priority areas through its second four-year regional collaborative program (RCP II).

"They are among others improving productivity of marginal farms and promoting options to enhance income generation," informed he.

Participants from Bangladesh, Bhutan, China, India, Myanmar, Nepal, Pakistan, Indonesia, Thailand are taking part on the seminar.