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Kathmandu Monday January 14, 2002 Magh 01, 2058.
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Ailing banks
Nepal’s two biggest commercial banks,
which have long been considered technically insolvent by independent observers, are now to
be given over to private foreign management. This strong dose of medicine to revive ailing
Nepal Bank Ltd and Rastriya Banijya Bank has finally come after some arm twisting by the
World Bank. Rastriya Banijya Bank is to be turned over to the US-based management company
Deloitte Touche Tomatsu, at 5.9 million US dollars the lowest bidder, for the two year
management contract. The hand over of management at Nepal Bank Limited to
PriceWaterHouseCoopers at the lowest bid price of 4.95 million US dollars is also in the
final stages. The timing of the hand over decisions is interesting. The World Bank board
meeting scheduled for July is to approve a loan assistance of Rs 830 million and the bank
authorities have apparently intimated that the loan process would be problematical if the
Banijya Bank hand over does not come through. Coincidently or otherwise, the decision
comes during a state of emergency when public dissent is not likely to be vehement, and
when the nation’s finances are being sapped by the Maoist insurgency. It is hard to
resist the inference that the World Bank has scented blood and decided to move in for the
kill at a time when this country is most vulnerable to outside pressure. The Bretton Woods
institutions are not known for using kid gloves when straightening out third world
economies that find themselves in serious trouble. It is to be hoped that hand over of
management at the two banks does not portent more of the same or similar in the days
ahead.
Quite apart from the circumstances incidental to
the bank privatisation move, it also raises a fundamental question about the probity of
our political-administrative culture. How fair is it to give foreign firms a free hand in
running our banks when the powers that be were never prepared in actual practice to give
similar free rein to indigenous management? The two banks in question did not land in such
big trouble overnight. It took some doing, over a length of time. The main culprits were
none other than the politicians and mandarins who could not or would not refrain from
breathing down their necks and interfering in their vital functions. Now that private
management from overseas is taking over, the politicians and bureaucrats will be forced to
stop all interference. Had such a hands off policy been adhered to all along it is near
certain that indigenous management at the two banks would have been able more or less to
hold their own. They would have been quite capable of tackling the various ills besetting
those banks, including the main one of bad loans. Many of these bad loans are the result
of over evaluation of collateral, for a consideration or for those with the necessary
connections. Incidentally, this is not the first time that we have gone in for foreign
management to shore up ailing entities. RNAC was once turned over to management by Air
France, but the practice was discontinued. Although the national carrier now needs
sophisticated foreign management know how every bit as much as the banks, RNAC is too much
of a cash cow for our politicians to ever contemplate turning it over to professional
management. |
