Devendra Pratap Shah is the Chairman cum General Manager of the Agricultural Development Bank of Nepal (ADBN). Shah, a chartered accountant, has been involved at the ADBN in various positions for the last three decades. He took over the reins of the banks four years ago. At a time when two of the largest government-controlled commercial banks Nepal Bank Limited and Rastriya Banijya Bank are on the news because of their poor financial health, the ADBN - also a government enterprise - has been making steady progress due to reforms introduced by its management led by Shah. He spoke to KESHAB POUDEL and SANJAYA DHAKAL on various issues of the bank. Excerpts:

The ADBN has recently completed 34 years of service. What are your reflections in this regard?

The main objectives of the ADBN are the rural development and poverty alleviation. Presently, we are enthusiastically engaged in realizing these objectives. We have also started reform programs so that our competence is enhanced in order to realize our twin objectives. We would be glad and content if everybody took our reform efforts positively and helped us.

There is a rumor that you have stressed more on "commercialization" aspect than the "development" aspect in the functioning of the bank. What do you say?

I don't hesitate to accept this allegation. I find no reason to take it otherwise. It is my belief that there is a need to inject "commercial culture" in the functioning of the ADBN as this is a business organization based on people's money. That is why I have been asking for change in the working style of the employees since my assumption of office. But the problem I am facing is, the change is not occurring as quickly as I desired. It is precisely because this aspect was neglected in the past, the public enterprises of the country are in a state where they are at present. Besides, it is the mandate of the bank to follow the commercial principle - the fact which, I believe, many are not aware of even now.

But when it follows the commercial principle, what will happen to the objectives the bank wants to achieve in the field of development?

In fact, "commercial principle" is and should be the way how the bank has to achieve those objectives. Besides, if the bank does not adopt new ways, its longevity would be threatened. No development effort can be expected to succeed when the life of the bank itself is in peril. It is not proper to go for short-term gain and take people for a ride. A bank that runs on public deposit has to follow the commercial principle - otherwise there would be a constant fear of some "accident" which might trigger its collapse.

Then, how do you draw  the line in the functioning of a Development Bank and a Commercial Bank?

Generally, former goes to areas where latter does not. More "outreach" is also expected from development banks. From the point of view of the Central Bank, however, the difference now exists only in their sizes. Commercial banks work certainly on the principle of profit maximization. Development banks, too, need to sustain and therefore earn profit. Otherwise, why would the private sector come to this field.

It is said that the reform program you initiated in the bank has yielded fruits. Could you elaborate?

There is no doubt that at present all the public enterprises in the country need reform. We realized the need for the same four years ago when we diagnosed our problem. We then identified the areas that needed reform; and without any help from any foreign agency, designed the reform program (see the separate story and box for detail). As a result, in the last four years, this bank doubled the size of its business. There were positive outcomes on our debt-recovery, resource collection, expenditures and incomes ratios. The ratio of debts that had already matured came down and the productivity of employees increased. There have been progresses in other development indicators too (see the box). Encouraged by these changes, we have been implementing the second phase of reform from this year onwards.

What are the differences between the reforms you have initiated and the reforms underway in other commercial banks?

I don't think there are many differences. We have been saying that the bank has to earn more compared to expenses, decrease the level of non-performing assets (NPA) and make accounts transparent. Without even looking at the "documents" related to the other banks, I can tell you objectives of other banks' reform programs are not much different. But we can expect that the reform in those banks would be quicker as they are spending huge amount of money compared to us.

Do you really believe so?

Whether I believe it or not is not that important. What I see is huge amount of money and many foreign and local professionals are involved there. Naturally, one will expect quicker result in such a situation.

How much are you spending on your reform?

We have spent very small amount of money to convince our employees the crux of the reform. We have to show that Nepalese professionals can also undertake reform programs. More problems emerge when Nepalese themselves come forward for reform, especially in terms of politicization in its handling. But, it is not that Nepalese cannot undertake reform at all. What we believe is that in our type of big bank with scattered offices and large number of staffs, reform cannot move without making people aware of it by training or workshop or otherwise.

What is the volume of NPA at the ADBN?

In true sense, no bank makes public the volume of its NPA - that is not thought to be proper for bank's own interest. So, I am unable to divulge the exact amount. We have brought down the level of NPA of our bank in the last four years, but still we have not been able to bring it down to the level as the international standards suggest. We may have bad debts totaling around one billion rupees, for which, we have already made provisions. But if we calculate it using certain standard, our NPA could be a little higher than this. Its level varies with the definition you apply. So, though the question on a bank's NPA might be relevant, it is difficult to give the "exact" answer. Despite so much of "expose and disclosure", which I think was not desirable, the exact amount of NPA of the two commercial banks still is not clear. Different statements have come from different people at different times in this regard.

You are right perhaps. But, are you not in favor of transparency of accounts in a bank?

Yes I am. I am one of the greatest supporters of Accounting Transparency in a bank.  However, I have always been saying that there is a difference between the "naked-ness" and "transparency". There are certain things which should be kept confidential from the public consumption, the purpose being protection of interest of the depositors. However, it does not mean that it should be kept secret from everybody. It could be divulged to people who can interpret it in a right way.

What are the policy changes that you introduced in the process of reforms?

The reform was introduced in the first and second phases. In the first phase, we introduced the system of monthly interest collection, interest rebate on interest collection, restructuring of overdue loan and rural saving mobilization. Primarily, the relationship between the bank and its clients was strengthened. As far as policy changes are concerned, we have attempted to make our accounts transparent in the branch level from the second phase. Transparency in accounts is the backbone of any reform program of a bank. We are trying to run our branches as "responsibility centers" for the reform in accounts.

What do you mean by the concept of "responsibility centers"?

This concept is somewhat similar to the principle of Cost Accounts. There, we use phrases like "cost centers" and "profit centers". Even "responsibility centers" is used sometimes. This is the concept by which one carries the responsibility of everything one does. To make it more meaningful in our context, we have defined it financially and have called to our branches to record their every expense and show their incomes in their own accounts.

Could you elaborate more on this?

Well, earlier the Head Office (HO) of the bank used to send fund to the branches from the amounts of deposits or loans on which HO had paid interest as cost. The branches were not paying the cost of the money they used but recording the income from the loans they provide to the clients by using the same money. In the new system, we have told them they would now bear the cost on the money they use as there is no free lunch. They have to make provision for NPA and so on.

What big hopes do you have from these new procedures?

This is a big thing for the bank. From this, in fact, all the branches and the employees will begin to realize their responsibility. They will now have to be sensitive enough about the amounts of their expenditures and incomes. Competitive spirit will prevail in the branches. When there is transparency in accounts, it will be easier for us to make comparisons of performances between the branches. There will be considerable progress in the financial indicators of bank when all employees become sensitive and work accordingly. That is what we want to achieve.

Are you talking about the prudential norms that a bank is expected to follow?

Exactly. It is the objective of our second phase of reforms to take prudential norms seriously to the level of branches and seek Accounting Transparency in that level. In the absence of Accounting Transparency, the profits made by bank are perceived to be "paper profits".

So, the ADBN is now a perfect bank?

You cannot say that at this stage. The reform process is continuing. All problems have not been solved yet. The achievements we have targeted have not all been realized. I can claim that the bank is on the path of reform but it is not what you call it as "perfect". But we are definitely en route to that.

How long would it take to ADBN to get there?

I don't know. It depends upon the proper implementation of on-going reform measures.

What are the problems faced by your bank at present?

There are many. The main problem is long term sustainability of the bank. Maoists have threatened the employees, who are scared of going to the field resulting in the lack of expected progress. The politicization of the employees is still continuing. There is a crisis of confidence in the whole country. People shy away from calling even a good person "good". As a result, bad people are living shoulder to shoulder with the good ones. There is a tendency to paint everybody with the same brush - which is very ironic. These are certainly contributing to reduce one's morale.

What should be done to achieve better progress?

The overall situation of the country should improve. There should not be an environment where employees can engage in politics. Management should be independent. There should be provisions for monitoring performance indicators by the owner of the bank. And if an organization is on the path of reform, it should be encouraged.

How do you see the ongoing activities in the field of Micro-finance in the country? Have these activities been fruitful in the poverty alleviation?

I think Nepal is one of the few countries where one can see lots of activities on the micro-credit sector. However, micro-finance also involves other activities like micro-saving, micro-insurance and micro-remittances. But we do not see similar progress on these activities here. In short, we can say that micro-finance movement in Nepal is moving ahead with mixed results and innovations. But the question how much it has helped in the poverty alleviation of the country can be answered only by an unbiased study. Nobody can say nothing has happened anywhere by the micro-finance. But one should also not think that poverty alleviation can be achieved by micro-finance alone. The reforms in the country's macro-sector and the priority on the social sector are significant for the poverty alleviation. In reality, the impact of micro-finance also depends on this factor.

What is the latest on the ADBN's involvement in the micro-finance sector?

We feel that micro-finance is a separate and special discipline. A different kind of manpower and mechanism is required to handle this. An exclusive organ that oversees this operation is needed. That is why the ADBN is opening Small Farmers Development Bank, which would ultimately look after the whole micro-finance sector now being handled by ADBN. In fact, I think we need to prepare and adopt a Micro-finance Development Policy in this country.

Is there any talk of privatizing or handing over the management of the ADBN to foreign agencies?

I don't know. My personal opinion is that I don't think the time is ripe for its privatization yet. When we ourselves are bent on reforms, I don't think we need foreigners' help. However, we have requested the Asian Development Bank (ADB) to evaluate our position in order to increase the degree of reliability. They have agreed to provide technical assistance for the same.  But so far as management is concerned, our professionals are competent enough for doing that. Our only demand in this respect is that Nepalese professionals also should get the similar working environment and facilities as foreigners will be getting in case of other banks, no less no more.

The ADB was the biggest donor of ADBN in the past. What is the situation now? Is the relation sour between the two banks?

No, no it is not so. It is true that the ADB was our biggest donor in the past. It consistently made efforts to bring about reform in our work culture. Both of us failed to achieve good results. So they stopped providing further support, which was quite natural. That, however, has come as blessing in disguise for us as we were forced to push reform on our own. The direction we are now moving in is the same one which ADB had shown us before -- but the methods and designs are our own. This has clicked. So the lesson we learned from the current situation is that Nepalese professionals should design and implement the reform package and donors should support from outside for any reform to succeed. Nepalese professionals are in a position to understand the problem quickly. What they need is support and favorable environment.

In the end, how could it be possible that while other public enterprises are on the decline, ADBN is moving forward?

I am unable to make such comparisons. What I can say is professional management is necessary for delivering good results. Good strategies have to be adopted. Policies have to be favorable. Employees have to be trained. The management has to make efforts to minimize the degree of politicization and so on. A team should work. The environment of confidence among the senior officers should exist. If there are some people who are always negative, cynical and selfish, efforts should be made to isolate him or her.