Interview

"Don’t appease the borrowers further"

SS Dabas

headed Everest Bank Ltd. as its Executive Director for about three years on deputation from Punjab National Bank. Before going back to his parent company, Dabas shared some of his views about the Nepali banking industry and the performance of Everest Bank in an exit interview with Nubiz. Excerpts:

While preparing to leave the Everest Bank Ltd. after steering it for over three years, how do you evaluate your work in Nepal ?

I would like to evaluate the performance of Everest Bank as a whole instead of evaluating my work. To summarise, when I go back I will be leaving as a satisfied CEO. When I joined it, I was told by all that that was not the right time to have come to Nepal because of the unstable political situation here. I came here disregarding the fact that it would be difficult to maintain the status quo, let alone the progress of the bank. We did not bother about the disturbances and concentrated on our given tasks. Any society faces one or another type of challenge. But the work doesn't stop and it shouldn't stop.

I am told, based on the evaluation made by the Nepal Rastra Bank, Everest Bank is being rated as the second best performing bank after Standard Chartered Bank Nepal. I am also told that there was a study conducted by a US concern last year wherein Everest Bank was described as the fastest growing private sector commercial bank in Nepal. That is like sweet music to our ears but we are not big headed. That does not make us complacent.

Everest bank has been able to report significant increase in its profits in the recent years and its NPAs are reported to be very low compared to other banks. Is it because of the low base in the previous years it being a young bank or are there other secrets ?

Let's not talk about percentages. They can be sometimes misleading. Even if we look at absolute figures, our growth in profits has been significant. Particularly, these three years, when I have been at the helm of the bank's affairs, not only have deposits and credit portfolio doubled but the profits have also more than doubled in absolute figures. This growth has come about because of two distinct factors. First, by analysing the economic scenario properly, we started diversification of our product line well in advance and before other banks could do it. Second, our emphasis was more on monitoring and recovering of NPAs and containing the same - to not allow irregular accounts to slip into NPA category, and at the same time to go whole distance in recovering existing NPAs. This has resulted into good profits and the lowest NPAs among banks in Nepal.

Everest Bank was expected to expand rapidly in the rural areas of Nepal, having Punjab National Bank as its main shareholder but the progress so far has been far from expected despite the fact that there is a lot of pent-up demand for credit in the rural areas, particularly in the urban-oriented villages. Is Everest Bank hesitating to go there because of the peace and security concern alone or there are other more important factors as well?

Most private sector banks including Everest Bank have been shy in expanding the credit or expanding their network to the rural areas. At Everest Bank we have deliberated in detail on this subject every year. PNB definitely has rich experience in agricultural lending (not only lending, PNB has gone so far as to provide training to the farmers in various aspects and has set up training centres. It's the only bank in India to do this.). We definitely want to draw on the experience of our joint-venture partner in this area. To some extent we are desisting from it because of the prevailing law and order situation. However, we have kept this option open. The moment things improve, you will find that Everest Bank will be the first among private sector banks to diversify in that area.

Everest Bank has been learnt to be facing problems with some big projects in which it invested huge amounts under consortium financing. How is the bank going on about these cases?

I would say that our bank is not facing problems in big projects. It is facing problems in recovering some accounts related to the hotel industry. As far as the hotel industry is concerned, where we are a member of the consortium and not the lead bank, we have to go with the consensus decision of the consortium. We alone cannot take a step which is not accepted by the consortium. The other thing is HMG and NRB have given some leverage to hotels declaring them 'a sick industry' because of factors which have been considered beyond their control. That also plays in our mind while dealing with these accounts.

Some of the hotels despite having done well during last year have continued to shy away from meeting their obligations towards their bankers. That is not right and the banks will someday lose their patience and take steps which may not be palatable to the promoters of such projects.

Everest Bank does not seem to be grooming Nepali managers to take over senior managerial positions. What  is your comment?

I don't know the basis of this allegation. Let me give you some figures which are in the records. When PNB joined hands as a joint-venture partner, three seconded officers came in from PNB and there were only two Nepali officers at the senior level. When TSA was renewed after five years in 2001, the number of seconded officers remained three but there were seven senior level Nepali officers. When I leave today, I can say that there are 19 senior level Nepali officers in this bank. I for one, have been very liberal in promoting meritorious staff, placing them in important positions, giving them ample opportunities to show their skills and professional knowledge. I have been trying to motivate and bring them up.

The Nepali banking industry saw a significant lateral expansion lately and this process is still continuing. Neither the depositors nor the borrowers are happy as the interest rate has gone down significantly on the deposits while it has remained almost stagnant on the loans. What has gone wrong?

By keeping the interest rates low, especially for the depositors in order to give better rates to the borrowers and maintaining their spread intact, the bankers are not doing justice to the depositors. I hold a very firm view on this and maybe some of my banker friends may tend to disagree with me. But time tests everything. Time will perhaps prove me right. I don't think there is any need to reduce interest rates for the borrowers further. If we stop it at some level, the banks can always think of giving better rates to the depositors. Ultimately everything boils down to how it affects the bottom line. If our bottom line improves, even by giving better rates to the depositors, that is exactly what we want. We should not appease the borrowers further. The interest rates should be kept at some optimum level which will help the bank and will also discourage non-serious businessmen from jumping into business. It has to be realised by all the bankers. I have been propagating this but all banks will sooner or later realise it that this (appeasing the borrowers) is not going to benefit anybody, be they bankers, genuine industrialists or depositors. How an individual bank does this depends on the efficiency of the service, deliverance of the products and the other in-built features of the product. It's not the interest rate alone that attracts borrowers.

What is your advice to the Nepal Rastra Bank and other authorities as a policy measures to rectify this anomaly?

In a liberal economy and the era of liberalisation towards which are we are heading, I don't see much role of the NRB as far as controlling interest rates in concerned. As a regulator they can have some basic standards in service delivery. The parameters for judging the bank's performance should be based on their delivery and their efficiency level. What should be looked into is whether the banks are fleecing the customers in guise of a popular product. Interest rates can remain free.

Professional managers in Nepal have frequently complained of difficulties in dealing with the Board of Directors. What is your experience on it and what are your suggestions to these complaining professionals to deal effectively with such Boards?

In Everest Bank we have had no reasons to have such complaints. We are fortunate in this regard. Our board has been functioning as a very homogeneous body. It has always been a guide. It has been giving orientation to the management of the bank for improvement of its performance. I did hear that in the board sometimes does not function the way it is expected to in some of the banks. There is extra indulgence of the promoters. That detracts the board from its key functions. In fact, the board has a key role in corporate governance. What I understand from corporate governance is that the board should give proper direction and orientation to the management, should keep proper check and balance so that the management works within the given parameters and targets and does not wander from the selected path. If that is not so and they are indulging in other petty issues, day to day operations, which is the domain of the management of the bank, that is not corporate governance.

How do you assess the Nepali banking industry in terms of human resource and banking culture?

There are two sides to it. One is that the managers in banking while performing their duties relatives, friends or acquaintances should not have an impact in their operations. It can then be professional. Those who have been able to sideline such relatives and acquaintances are proving to be very good bankers. Most of the managers have not been able to do this and thus have not been able to execute their task professionally. This has ill effects on the bank's performance. While being a manager at any level, the utmost concern should be focused upon 'which action of an individual will affect the organisation in what way'. Relevant actions or decisions should be taken accordingly.

A large percentage of NPAs of the banking sector is also the result of this attitude. Friendliness pays to some extent but not beyond a certain level. So harshness is also necessary in controlling them. If I am to recover a loan from a wilful defaulter I have to deal with him with that in mind. Managers here have sound knowledge but they sometimes falter at the implementation level.

Nepali legal framework is regarded better than that of India in terms of the powers it vests on the banks to realise loans. Still Nepali banks complain of a very high ratio of bad loans. What is behind this malady in your experience ?

Definitely the laws here are more favourable to the banking sector as compared to India. I have been the head of recovery cell of PNB of India. When I compare the two systems I feel that the systems here are quite favourable to the banks. But the NPA figures convey a different message. High NPA is the aftermath of our bankers not being able to utilise those laws in their favour. They are not using these laws timely and proficiently.

Nepali bankers complain of Nepal Rastra Bank's dictatorial style while dealing with banks. What has your experience been?

To say that NRB is functioning in a dictatorial manner is wrong. NRB is the regulator of all banking activities of the country. As a regulator they have certain roles to play and their functioning should be seen in this light. When they are performing their roles we say that that was not the right time. That way the right time will never come. We are now trying to enter WTO, SAFTA, BIMSTEC, international, regional and sub-regional groups. At the same time we want the regulator to wait in bringing about certain changes in the system and procedures. These two things are contradictory. One the one hand, we are inviting international competition and on the other hand we do not want to fall in line with international practices. This cannot go hand in hand. We have to change and be ready to face the onslaught of international competition. Whatever the regulators are doing, they are doing to improve the banks' health. It should not be taken as  dictatorship. It is the demand of the time and the system.

Despite the law governing digital signatures for more than four months now, the Nepali banks, including Everest Bank, have not been able to start e-payment systems other than ATMs that they were offering even before this law was introduced. What is holding them back ?

We had taken a conscious decision that our priority was to diversify, increase our network and to also reduce our NPA to a level that doesn't affect our functions and results. In this year's agenda we have e-banking on the priority list.

Anything else that you may like to add?

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