National 4 (Spotlight Weekly)

‘We Are Not Here To Make Quick Bucks’

— Prithivi Bahadur Pande

Prithivi Bahadur Pande is the Chief Executive Director of the Nepal Investment Bank Limited. He took over the management of Nepal Indosuez Bank early this year after its French investors pulled out. He then converted it into an investment bank. Pande is a well-known figure in the country's banking sector. He once led the state-owned Rastriya Banijya Bank (RBB) and had been associated for long with the Nepal Rastra Bank (NRB). He also headed the Himalayan Bank prior to taking over the Investment Bank. He spoke to KESHAB POUDEL on various issues surrounding the banking sector in the country. Excerpts:

You are heading the Nepal Investment Bank at a time when the country's economy is in a recession. How is your bank doing?

We started the Nepal Investment Bank with a low base - we are working probably with one third of our capacity. Normally in a bank, higher the capital base, higher will be its capacity. When we came in, the bank's capital base was Rs 500 million while the bank's risk-asset portfolio was about Rs 27 million, which means basically that the bank was running in 53-54 percent capacity. The problem of Nepal's banking sector is two-fold. One is that certain sectors or certain people do not get access to credit whereas certain other sectors are involved with lot of banks. Because of the capital adequacy ratio fixed by the central bank, which has been increased from 8 to 12 percent, most of the bigger banks are already working in full capacity. They have already divided their loan portfolio to different business houses and different sectors. However, banks like ours have yet to grow to full capacity. Our intention is to grow to our full capacity as soon as possible.

What about the investment climate?

Naturally, a lot of people will not try to go for long-term investments for obvious reasons. Given the climate of instability and insecurity, there is no concentration on trading activities.

It has been six months since you took over the Nepal Indosuez Bank. What has been your experience?

It has been six months since our group took over. But let me be very clear that it has been four months since I took over the chair. So lets not go by the six months but by the four months. We have had tremendous growth on lending. It grew by about Rs 1500 million, which is substantial. As I said earlier, my job is to reach our maximum capacity as soon as possible because we are losing out. We already have infrastructure, staffs and office. In any industry, you have to work in an optimum capacity. If you are not, then you are not delivering the goods. Our capacity to function as a lender would be about Rs 4500 million. We have already lent about Rs 4250 million. So my objective is to reach that Rs 4500 million mark. But when you are in the business of lending, you have got to be extremely careful because that is where all the risk is. Due to our past experiences, we know the parties who deliver, the people who pay in time and those who do not. Presently, we are mainly concentrating on trade related activities. For me, that is enough to enhance my business at the moment. We have kept ourselves limited to about 30-40 clients who have got impeccable track record. We are growing very fast but we are also taking minimum risk. Our lending growth is about 57 percent and deposit growth about 30 percent. On the aspect of deposit, we are growing on the current deposit. Naturally, we would like to grow on the stable deposits like savings. That we will do in the next six months.

What about the physical infrastructure of your bank?

We are expanding our office space from the current 9000 square feet to 20,000 square feet shortly. My objective is: get the infrastructure and have it in such a way as to give maximum comfort to our depositors. At the moment we are providing extra facilities to our customers. It is a fact that our bank is in the best location in town - and we are also having 8 ropanis of land in Durbarmarg so that there will be no parking problem. We will create the atmosphere conducive for banking here. And we promise top class service. At the moment, we have certain restrictions like lack of space. But as soon as we expand, we will improve customer service. The time it takes to make deposit or withdrawal will be cut down. So, growth-wise we are happy.

What inspired you to introduce the concept of Investment Bank in Nepal?

When I left the Himalayan Bank, the idea was to go towards investment banking. There are so many functions of Investment Bank. What I thought was that there were already enough commercial banks here and the need of the hour was to open a solid investment bank. By investment banking here we are not going by the typical American concept. Our thinking was to establish a long-term investment bank like the Nepal Industrial Development Corporation (NIDC), which is run by the public sector. There are quite a few development banks out here but they have small capital base. To undertake big projects you need high capital base and good will in the market. I have identified certain sectors besides underwriting and structuring financial requirements. There are half a dozen key sectors like tourism, agro-based industries and transport, which require heavy investment where normally business houses are reluctant to go. So, when the French offered this bank to us, we had to go for commercial banking. But I kept the name Investment Bank so that later on we can go towards investment banking. Anyway, you must understand that in Nepal you cannot only concentrate on one aspect. The market is too small and there is so much competition. You have to be jack-of-all-trades to survive. If the market here was like that of the United States, you could concentrate on investment banking functions like mergers, acquisitions and restructuring of finances and charge fee accordingly. But here the market is limited so you have to take the investment-banking concept with a pinch of salt.

You have been involved in banking sector for long. You also worked in government bank, in the central bank and in the private sector bank. How do you feel?

I have been in the banking sector since 1978. It was quite a challenge to work in the big bank like RBB and then come down to start small private bank like Himalayan Bank. There is no need to say that Himalayan Bank has been a success story. There was a lot of hard work behind it and of course, it had some excellent promoters and staff. For me, it was a time to move on. The banks' staff are equipped to handle the responsibility and I thought I had to start something new, something that was of a different kind of banking. That was how I came up with the idea of an investment bank. In fact, we had registered one company at the central bank for the purpose. But then the French approached and we thought it would give us an early start if we took it over instead of opening a new one altogether. If the economy of the country takes off in future, there will be need to inject capital and we will begin to act as investment bank then. Right now though our name is Investment Bank, we are acting like a pure commercial bank.

At a time when the country's economy is in shambles, what made you invest your money in this sector?

Indeed. If you look at it very logically, may be one should not have invested at a time like this. But reasons why we invested were; first the bank we were taking over was a very good one, it had a lower base and there were ample opportunities to expand. It was a challenging task but nonetheless it was do-able. Second reason is that being a Nepali I wanted to invest in my own country and create value and productivity here. Though I could have invested outside - investing outside is illegal but there are many ways of doing it - I wanted to put my money here only. We are not here to make a quick buck. We have come with long-term perspective. If we had not taken over this bank, we would probably have made our investment anyway though we might not have invested Rs 1000 million, as it is the minimum requirement fixed by the central bank now, to open a new bank. I think the central bank is trying to discourage the entry of more commercial banks. I guess as they cannot deny license, they are trying to do so by introducing restrictions. I also believe that mere crowding of banks is not good for economy.

How is the Nepal Investment Bank doing on non-performing ratios?

Basically, we believe in setting certain standards. We are not here to make profit by selling our shares in short run. At our bank, the non-performing ratio is 3.6. It was 4.8 when the French left. Recently, there was a report that said our non-performing ratio was 21 percent. It was all hogwash. We would not have taken the bank over had its non-performing ratio been 21 percent.

You had to face a lot of hurdles when taking over the bank from the French early this year. How do you feel about that experience now?

There were hassles alright. When there is a nice fruit in the tree, naturally people will try to eat that fruit. I don't blame people for trying to eat the fruit. The competition made us feel even more determined to get this bank. There was great support for us from every quarter and everybody wished the bank should fall in right hands. Those are things of the past, as far as I am concerned. Naturally, it caused a moment of anxiety particularly with the cases being dragged to courts. Everything takes its own course, particularly the legal issues. Anyway, the court too delivered within 4-5 months. What I was scared of was because of this legal battle; customers both at depositing and borrowing would lose interest in the bank. Surprisingly, not one borrowing customer withdrew. All of the depositors including the foreign depositors held on with the bank. So when our group took over and they knew the people behind the bank, they had no reason to switch. We will be giving them opportunities. I am happy to tell you that we are going to be providing 20,000 square feet of space for our customers. Definitely, we will give the best service any bank in Nepal can offer because now the competition is going be in the service sector. On the capital front, we are alright and in the image front also we are alright. But it will mean nothing unless we keep our customers happy. We will be providing best working environment for our staffs and customers.