National 8 (Spotlight Weekly)

‘Superior Customer Service Is The Only Way Forward For Banks’

— SUMAN JOSHI

SUMAN JOSHI, 35, is the Chief Executive Officer and Director of Laxmi Bank Limited. A graduate in economics from Punjab University, Joshi has been involved in the banking profession since 1989. The youngest CEO of the latest private commercial bank talked about the banking situation in general and Laxmi Bank in particular with SANJAYA DHAKAL. Excerpts:

You announced that Laxmi Bank has already managed to reach break-even point in eight months of its coming into being. Could you tell us how that has been possible, particularly at a time when the country's financial health does not look good?

Containment of cost of funds, correct pricing, a cost-conscious culture, drive and commitment of the staff have all contributed to Laxmi Bank being able to achieve operating break-even in a short span of time. We have been very selective in our lending activity. This is followed by proactive credit management to ensure that we have good understanding of our customers and that the risk we assume continues to be bankable. Given the fact that we have largely been confined to the Birgunj market, we are happy with our operating results.

You said you have some specific and tailor-made programs to attract clients. Could you specify? What about the program to provide easy and instant loan to traders you mentioned during the press meet? How does it work?

Our business strategy is to continuously work toward innovating and improvising our products and services. We strongly believe that superior customer service is the only way forward. Therefore, we put customers first. Meaning, we try to understand our customer and his/her financial needs before we offer our products and services. In many cases, straight -forward vanilla products would suit requirements of our clients. But there are hose who have different needs. We therefore try to improvise and tailor-make a product. For example, we have launched "super savings account" to cater to a segment of individual depositors who do not necessarily need gold chains every month but need priority and low-cost banking services apart from a reasonable return on their savings. Likewise, "supply finance" has been launched to help induce and develop a bill culture among the businesses across the country. This is an effort to make business loans available "across the counter". Supply Finance, as the name suggests, is a short-term working capital finance designed to meet the funding gap between dispatch of goods and receipt of payments. This product has been targeted mainly at companies and firms who supply raw materials, stores, inventories etc. to established companies. After delivery of goods or services and upon submission of buyer-accepted sales invoices (credit notes), such suppliers are eligible to draw loans from the bank, which will be offset against the final payments by the buyers. Under this scheme, the borrower does not need to go through a relatively lengthy process of getting a line of credit established. Pricing of the loan is attractive as well. Small- to mid-sized business segments are expected to benefit from this scheme.Our banking software has the capability to support a great degree of flexibility and versatility in the products we sell. We are testing out a few variations to regular banking products, which we shall roll out in due course.

Many say Nepal's market is not big enough for so many commercial banks. Being the latest entrant to this field, what do you say about this point of view?

Let me put it this way, there is still plenty of room for good commercial banks to make valuable contribution to the economy. The focus has to shift to long-term goals. People must realize that banking is not a short-term business. Obviously, as spreads and margins begin to shrink, some of the existing banks may need to merge to achieve economies of scale. But there will also be niche players with strong fundamentals who will handle competitive pressure effectively and still stay as good banks. From what I can see, henceforth, there is no alternative to prudent management and long-term focus in the banking sector.

Laxmi Bank is all set to join hands with largest private-sector Sri Lankan bank, Hatton National Bank. How will this partnership be mutually beneficial?

Hatton National Bank is the "flagship of Sri Lanka's commercial banking sector" and has a 114-year history. The bank has evolved by merging with or acquiring operations of international banks like Grindlays, Emirates, Indosuez and more recently Habib Bank AG. The depth of HNB's banking expertise is, therefore, huge. Once the Technical Service Agreement is approved by Nepal Rastra Bank (NRB), HNB will second a couple of very senior bankers to support our management team. Our staff will gain direct exposure to international banking practices. Employees of Laxmi Bank will also be trained through exchange programs and on the job training at HNB branches.

Apart from the technical and managerial support, our tie-up gives us access to HNB's vast network of 450 correspondent banks across 80 countries. Suitable HNB banking products and services will be made available for replication and adoption in Nepal by Laxmi Bank. Technologically speaking, HNB is fairly advanced and there are a number of services we could introduce in the Nepalese market. HNB stands to gain by exposing their senior executives to a different market like Nepal. Their entry to Nepal fits with their strategy to enhance presence in the South Asia region.

We believe that HNB will opt for equity investment in Laxmi Bank as well in future. When viewed in the backdrop of current lacklustre performance of our economy and a series of withdrawal of foreign partners in Nepali ventures, HNB's entry into Nepal assumes great significance.

Currently there are many ills plaguing the commercial banks, particularly the Nepal Bank Limited and Rastriya Banijya Bank. The issue of staggering NPA is also a matter of great concern. As a banker, what do you suggest as a remedy?

Proactive credit management. Professional culture. Good governance. Emphasis on the long term. The remedies have all been identified. The key lies in effective implementation of prudent banking norms and practices. It's really a question of going back to basics. Many banks have suffered because they have chosen to ignore the concept of need-based cash flow driven lending. Businesses still have access to much more bank loans that they reasonably require. In other words, banks are still name-lending. It will be a good idea for Nepal Rastra Bank to oversee a mechanism whereby a ceiling is placed on the aggregate bank loan a company or a firm may draw from the banking community. Businesses should not be allowed to borrow more than what they require. Each drawdown under a bank loan must be appropriately complimented by equity or internal generation of the business. We should also create an atmosphere for the lending institutions to have access to reliable database and financial information on various sectors of the economy and the businesses. Banks are compelled to take business decisions based on information that are not always reliable.

Prior to joining Laxmi Bank, where were you involved? And how does it feel to be the youngest bank CEO in the country?

I spent 11 years with Nepal Grindlays (now Standard Chartered) Bank. I held a number of senior managerial functions at Grindlays including management of large corporate relationships, secondment to ANZ Grindlays-India, management of the bank's largest branch and strategic planning. I subsequently had a couple of brief stints at Bank of Kathmandu and Kumari Bank at top management levels before taking over as the CEO of Laxmi Bank. Being the CEO of a bank is very challenging indeed. Obviously, there is a lot to learn. But I feel that I can bring in a fresh outlook to Nepalese banking arena. My board, colleagues and well-wishers have all been very supportive and we are working effectively as a team.

Presently the bank is based in Birgunj. What is the reason for choosing Birgunj as a regional base?

After Kathmandu, Birgunj is the most vibrant region in terms of economic activities. Whilst we are currently registered as a regional bank, our outlook, business strategy, management capability, infrastructure etc are already geared toward operating as a national level bank.

How soon will you be opening your office in Kathmandu?

Our request to open a branch in Kathmandu is currently under consideration at Nepal Rastra Bank. We believe that we have a strong case here. Should NRB give us the permission, we are ready to start operation in Kathmandu in January 2003.