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Kathmandu Wednesday May 23, 2001 Jestha 10, 2058.
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Ailing RDBs
Four of the five
Rural Development Banks (RDBs), established seven years ago with an aim at extending
micro-credit at grassroots level, have technically turned insolvent. Low debt recovery,
political interference, overstaffing and absence of loan provision, besides managerial
weaknesses, are the major factors attributed to this sorry state of affairs. The fact is
that the five RDBs set up in five regional development centres are the replica of the
highly successful Grameen Bikas Bank of Bangladesh. The government introduced such banks
with a hope to uplift economically backward communities in the rural area, and not to
benefit a few who have misused these financial institutions. This is nothing but a major
blow to the much-hyped government’s financial sector reform programme that kicked off
a decade ago. Had the government introduced effective measures to prevent any financial
erosion as this, these banks would have certainly fulfilled their commitments, apart from
extending the micro credit to poor farmers.
The financial study conducted by the Nepal
Rastra Bank underlines that until the last year’s mid-July, four of the five RDBs had
accumulative losses of over 137 million rupees. The eastern regional RDB set up with the
total capital of 60 million rupees had eroded 57 million rupees. Similarly, the western
regional RDB manipulated its accounts, made possible by weak policies, to project profits.
The mid-western and central RDBs had eroded a total of over 25 million rupees by July 2000
due to sheer negligence and irresponsibility. The term period for the management team,
which ought to have comprised 8 members each, has had more than 21 members in the board of
directors. And commercial banks have refused to lend additional funds for operation as a
result of RDBs’ weak financial position. Mismanagement and misuse of resources are
the chronic problems that started when politicians began appointing their cronies as
chiefs of these banks. What is disturbing is that the trouble did not stop there, rather
it worsened after lending loans to those who were near and dear to these politically
appointed chiefs. Bank managers even cashed in on legal loopholes to benefit themselves at
the expense of the public.
The financial insolvency of RDBs has come to
light a year after the KPMG report declared the two state owned banks - the Nepal Banijya
Bank and Nepal Bank Limited -"technically insovent". This has undoubtedly given
us a insight, that is all too revealing, into how things work at state-run financial
institutions. Neither can the public nor the private sector management work so long as
there is an absence of effective mechanism and legal enforcement committee to check
financial irregularities. The government has no option but to upgrade the regulatory
mechanism, to make these banks free from political interference and to run them with
competent staff with better loan provisions to ensure high debt recovery and efficiency in
management.
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