 |
|
| Kathmandu Wednesday April 03, 2002 Chaitra 21, 2058. |
|
NRB intervention pertinent
By Bishwambhar neupane
Nepal Rastra Bank (NRB), pursuant to the audit
report, inspection report of NRB or any other reliable sources, if deems reasonable that
the bank has not complied with the directives of NRB; its affairs are prejudicial to the
shareholders or depositors; or is not being operated to the satisfactory level, may form
an inquiry committee for the purpose of making an inquiry into the bank consisting of
persons, not related to bank, having banking knowledge. NRB, while constituting such an
inquiry committee, shall determine the procedure to be adopted by the committee and affix
the
duration for submission of the report." (Section 29 "Ka", Sub-section 1,
Commercial Bank Act 2031).
"NRB with prior approval of HMG, may
suspend the Board of Directors of the bank and handle the management itself or let it be
handled through any other body if the report submitted pursuant to Sub Section (1) reveals
that the bank has not complied with the directives as stipulated by NRB, the affairs of
the bank are prejudicial to its shareholders or depositors, or its transactions are deemed
harmful to it." (Section 29 "Ka", Sub-section 2. Commercial Bank Act 2031).
When we talk about the stake of promoting
companies or the promoters, along with the stake of shareholders, the quantum of
investment they pour in appears substantial. Say in a Rs 500 million Commercial Bank,
promoters inject around 70 percent of the total equity i.e. approximately Rs 350 million
and the rest Rs 150 million is raised through IPO (Initial Public Offering). But when the
bank comes into full operation and starts to generate tangible operating profit, it will
have already raised some Rs 5 billion plus fund from the general public in the form of
deposit. This Rs 5 billion plus deposit collected from the market, which eventually
is mobilized by the bank for its sustainability, is the deciding factor for the
survival and the growth of the bank.
In the western and even in most South Asian
countries, the classical theory of banks’ profitability reliant upon the spread, the
difference in percentage between the deposit and the lending rate has gone astray
altogether. Their major philosophy of survival/profitability has already shifted towards
other fees and commission and retail Banking/Consumer Financing to certain extent. The
wholesale banking is slowly fading away from the scope of commercial banks. However, in a
country like ours where even some of the most profit making banks, forget new and
emerging banks, are totally relying on the spread for sustainability, the importance and
role of deposit is becoming more and more significant.
Nepalese banks are surviving primarily on the
ground of money raised from the general public in the form of deposits. The public place
their deposits in banks for a mere 4-5 percent interest per annum out of their hard-core
savings. Therefore, the management of the banks should be well familiar with the concern
of the depositors, they should be well equipped with the knowledge and adopt careful
measures in order to ensure that the wealth of the depositors are not jeopardised. When
the board of the bank and the management starts making decisions/extending credit without
giving due thought to the above mentioned factors violating the ethics and the prudential
lending norms, the interest of the depositors are put at huge risk. When this situation
arises, the March 14 and March 20, 2002 episodes are likely to be repeated in the Nepalese
banking history time and again.The aforementioned dates are memorable in the Nepalese
banking history.
The first date was when NRB dissolved the board
of Nepal Bank Limited and on the later date, it dissolved the board of Lumbini Bank
Limited and took over the top level management in its control. This sort of NRB
intervention had become a must to boost up the morale of the depositors and in order to
retain their confidence to keep their deposits intact. The move of NRB has sent signals to
the market that the culprits are bound to be penalised and the public wealth cannot be
easily embezzled.
The move of the Nepal Rastra Bank has been
welcomed by the people from all walks of life and has sent a message to the management of
the commercial banks that they should adopt more cautious measures while extending credit
and making other decisions related to the mobilisation of deposits.
Other Stories
|
