"NRB knew, it was illegal"

The board has made a decision that it will not be a management contract but TSA or Technical Service Agreement. So unlike in the case of Rastriya Banijya Bank, it will not be a management takeover in the case of Nepal Bank Ltd.

But the advertisement published in The Economist suggests that a simple rather than TSA, NRB is also looking to hand over the day-to-day management of NBL to a foreign team.

You see, the notice published in The Economist is unauthorised. The ad does not directly mention Nepal Bank by name. It talks about ‘two Nepali banks’. So NRB was aware of the implications. It knew that the notice would be an illegal one since the NBL board had not been consulted prior to publishing the ad. The board will therefore not go in accordance with that notice.

The present board is accused of inefficient management. What do you have to say ?

It is necessary that the situation that existed before the new board took over be analysed. It is also necessary to understand the functions and composition of the board. The board functioned for almost two years with four representatives of the government and only one from the public general shareholders. Of the four representatives from the general shareholders, the tenure of three had expired and no election was held for the replacements. So the board had majority representation from the side of the government, though the government was already a minority shareholder. In those two years, during which time Sher Bahadur Thapa was the Chief of NBL, irregular loans worth almost two billion rupees had been sanctioned. To give you a picture of the situation that existed when we came in, there was rampant corruption, loans had been sanctioned irregularly. About 50 percent of the amount was almost impossible to retrieve, and in some cases, the borrowers could not be traced. As soon as we took over, we implemented steps to curb corruption. But we soon realised that neither the government nor NRB were cooperating with us. I would say, while the attitude of the government was indifferent, NRB was actually supporting the same people against whom we wanted to take actions. We could therefore not take actions in time. Meanwhile, the bad loans, and the interest on the loans could not be retrieved. So we had to make provision. And now, two or three years later, the provision has risen to Rs. 2 billion, almost 100 percent of such loans. And that is how the bank has been pictured to be in loss. As bad as the situation was already, there have been numerous political interferences, politicians offering refuge to corrupt officers. So, rather than our inefficiency, I think the indifferent attitude of NRB and the government should be blamed for the situation that NBL finds itself in now.

KPMG’s report is based on loan samples. Even when sampling, they have taken loans that were known to be bad loans. They did not take into consideration all the loans the bank issued. Of course, it cannot be said that the bank is doing well. But the loss is due to provisions for loan loss.

What are the other serious reasons for the poor state of the bank ?

First of all, the collateral for the loans are not so good in many cases. I have already talked about political pressure. Politicians do not want any action initiated against corrupt officers. In fact they want these very officers to take over influential positions in the bank. The directors are also influenced by the politicians. Since all of them have their own businesses, the politicians try and see how they can manipulate situations to affect their businesses. Of course, I feel that the individual director must also be responsible for coming under any sort of pressure. That is also why we want to go for TSA. It will not be easy to pressurise a foreign team, and their presence might result in reduced political influence on the bank.

They (foreign team) are welcome if they come with new techniques of banking. If they come under TSA, our management could learn a lot from them. So they will inject new life into the bank. But it is not that Nepalis cannot do the job. NRB has made a provision to include, I think, three Nepalis into the team. So efficient Nepalis can take part. But we know the kind of pressure they are going to face.

We have also objected to the idea of handing over management reins to a foreigner. We want a foreign team under TSA which will mean that they will play more of an advisory role. Talking about unions, they have objected giving full management to a foreign team. But they also supported TSA. A team that comes under TSA will not advise immediate firing of staff. They will first look for a golden handshake method of off-loading the excess staff. There will be no objections to such a move. But talking on a different level, rather than job cutdown, the foreign team might see necessity to reduce down branches. We have some 200 branches – of which 75 percent are just not viable. They are all posting losses. But we will not be allowed to close them. If we are thus handicapped on the one hand, there are banks that have only one or two branches, that too in prominent stations. So if the foreign management thinks some branches have to be done away with, will NRB and the government endorse that ?

I think the Finance Ministry and NRB treat NBL and RBB very shabbily in relation to joint-venture banks. You see, the joint–venture banks are staffed by people who are relatives of high-placed officers of the Finance Ministry and NRB. And that is where the protection comes from. I have felt that the bureaucrats are concerned for the jobs of their relations. And so we are treated unfavourably. Other banks are given special provisions, they are offered various facilities that NBL and RBB do not enjoy. For example, they have not been forced to open up branches in rural sectors. The fact of the matter is that they prefer to pay penalties because they will still be on profit. But look at us. We have so many branches posting huge losses. So I think that NRB has also played a role in making RBB and NBL suffer great losses. It is NRB’s duty to analyse whether or not the KPMG report is complete and true. NRB also has a supervisory body. Does their analysis of NBL and RBB complement KPMG’s report ? They should make that known. They cannot quote KPMG when they have their own body to look after things. It is all right for a common man to do that, but not for NRB.

That could be the case. NBL and RBB hold lion’s share of the market. So the private banks could be attempting to exploit the situation and snatch away our clients.

In my view, the present situation does not allow selection of any responsible director. The directors are responsible to the shareholders. But there are also people who hold huge stakes and so do not need vote from anyone. These people will not be answerable to any other shareholder. So a situation of irresponsibility and selfish interests is very likely to be created. Therefore, I think the method of electing the board of directors itself needs to be changed. Coming to your question, I don’t think that a controlling group should be there because all it will do is give such a shareholder a monopoly.

It had been decided between NRB and our board to go for TSA, the terms and conditions of which were to be finalised by the board. A provision of the Commercial Bank Act gives all authorities to the board of directors. That means NRB’s role is to give directives on certain issues. It is not upto them to hand over the bank on a management contract or TSA. However, another provision of the Act gives NRB the right to dissolve the board if the bank is doing badly. But investigations must reveal the condition of the bank, certain criteria must be fulfilled before NRB can take any step in that direction.

I think the related laws need amendment. One bank is allowed to buy shares in another bank. Tomorrow, that bank can send its representatives to this one and manipulate the situation, snatch clients and so on. I think this is another reason for the poor showing of our bank. That has to be stopped.

NRB had given us in writing the authority to make final decision on the foreign team to take charge of the bank. Accordingly, we sent two of our representatives to short list eight teams from among 41 that had sought the contract. From the eight, we would choose one we thought right and the most appropriate. However, NRB has, on its own accord, short-listed the applicants to four.

No, we’re not accepting that.