'Govt should borrow from financial institutions'

Rajesh Rajkarnikar, the chief administrator of the Employees Provident Fund (EPF) is a chartered accountant by profession. Rajkarnikar, who is also a recognised financial analyst, believes that the government should initiate the process of utilising the funds of financial institutions in big projects. Talking to RajKumar K.C of The Rising Nepal he said the EPF was ready for the long-term investments. Excerpts:

How do you observe the country's present economic situation?

- At present the country's economy is not sound. It has gone down mainly due to political instability. But it can be hoped that the economy would take a positive move following the ceasefire on January 22. Positive signs in the economy are yet to be seen. Hopefully, if the peace talks become successful, tourism and hotel industry will pick up and the economy will revive. But it takes at least 1-2 years for full recovery.

It is said that a huge amount of capital has remained idle in some major financial institutions like the Employees Provident Fund and the Rastriya Bima Sansthan. How can this capital be utilised for the national development? Do you have any investment policy?

Firstly, I would like to clarify that our fund has not remained idle. We collect Rs 3-4 billion every year. Whatever the amount collected is being paid to the clients and the remaining amount is deposited in the fixed account.

In one-way or other, the money is in circulation. Our fund is not idle. Decline in the interest rates of fixed deposits has affected us. It would be better if the government borrows from us, but the government has not taken any initiatives in this regard.

The government should borrow funds from the financial institutions

Do you have any long-term investment policy?

Well, we have such a policy for long term investment particularly in the areas of hydropower and roads construction. We also intend to invest in such areas, but they need investment that we cannot afford at once. Our prime objective is to provide safety to the deposits of the employees fund. Since we are a non-profit organisation, we cannot bear high risk. Besides payback period in such big projects is also long.

If the government offers such a proposal of investment we are ready to do that, but we haven't got any offer from the government.

The EPF provides housing loans to its members at 10.5 per cent interest

What would be the upper limit of your investment?

Well, it depends upon the nature of the projects. We have seen different projects from different aspects. But the maximum limit will be Rs 3-4 billion.

Until a couple of years ago, the Employees Provident Fund (EPF) used to provide 11 per cent interest to its depositors. Now you have come down to 7.25 per cent. What is the reason of cutting down the interest rates?

We survive on the return of our investment. In our 40 years history we haven't taken any financial assistance from the government.

The biggest portion of investment portfolio is in the fixed deposit. It covers more than 50 per cent. More than 12 per cent of the total fund has been invested on government bonds. Similarly 25 per cent investment goes to depositors. We used to provide 11 per cent interest on the deposit, when the interest rate on fixed deposits was 13 per cent. But now the interest on the fixed deposit is 5.75 per cent in the market and we are providing 7.25 per cent. We are giving more than the market rate.
For the last couple of years we haven't ventured in the areas of manufacturing and tourism because of the risks.

However, we are trying to diversify our schemes. In order to diversify our investment, we have developed two major schemes for our own members in order to diversify investment portfolios. The first one is the home loan scheme, according to which a depositor can borrow money equivalent to seven years salary. The second one is education loan. Under this provision a depositor can borrow Rs 900 thousand to study abroad and Rs 600 thousand to study in the country.

Besides we have a special provision for borrowing facilities to our depositors. Under this provision a depositor can borrow up to 90 per cent of his total deposit.

The EPF provides educational loans upto Rs 900 thousand at 8.5 interests

What are the new schemes of the Employees Provident Fund?

We don't have any new schemes now. We are trying to consolidate the existing schemes such as house loan, education loans etc. We have already invested more than 950 million as house loan. We started house loan schemes two years ago.

How much fund does EPF have?

The total amount of the contribution that we have collected is around Rs 30 billion. We have Rs 2.25 billion as reserve.

How do you comment on the government's borrowing policy?

We have repeatedly raised our voice for effective utilization of our funds. In fact the government should have taken initiatives.

We have also asked the Asian Development Bank and the World Bank to use our funds in the investment. The size of the capital market has become bigger. Besides, certain amount of the Nepalese financial institutions should be used. The ADB and WB have taken our views positively.
As far as the return on investment is concerned, we need return (income) of our investment rather than loan recovery. We are in a position to provide loans upto 20-25 years to the government.

As a chartered accountant, how do you comment on the present banking system?

The banking institutions are facing challenges, but the joint venture banks are doing fine. Joint venture banks have liquidity problems.

The EPF is willing to make long-term investments in the big projects.

What role can Employees Provident Fund play for the consolidation of the money market and banking system?

We are non-banking financial banking institutions. We don't do retail business, but we can join hands with commercial banks in big projects.

How do you analyse the present money market?

It is too complicated because of instability. But the size of the capital and money market is becoming wider day-by-day.

How do you comment on the privatisation and liberalisation in Nepal?

It is essential for a country's development, but the country's economic situation should be taken into account. Now it is a time for analysing our strengths and weaknesses about the privatisation and economic liberalisation.

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