View Point (Spotlight Weekly)

Repayment of Debt Must Not be Made a Subject of Debate

By Rajendra Khetan

All our paths towards the resolution of the political crisis facing us are narrowing. Meanwhile, we are also heading towards an economic crisis that might even trigger our total collapse. Indeed, even at a time when dark clouds are hovering over our political horizon, we could have found some grounds for being optimistic had the country been heading toward the right direction financially.

Unfortunately, however, the country's economic sector is also moving along the path of crisis just like the country's politics. As a result, our hopes of freeing ourselves from the imminent national crisis are dying, and we are feeling that we are definitely heading towards a situation characterized by both political and economic crises.

Of late, the issue relating to bad debts of our commercial banks has simultaneously exposed all the problems inherent in our economic sector. The burden of bad debts of the country's two prominent commercial banks, the Nepal Bank Ltd., and the Rastriya Banijya Bank, has increased to such an extent that it has become unbearable for them. The steps that they have now taken for the recovery of such debts have fully exposed the financial crisis facing the country. In addition to this, the episode has brought to light some examples of the economic anarchy prevailing in our economic sector.

Indeed, the two prominent banks of the country have taken some important steps to recover their bad debts on finding that they are on the brink of landing in a financial crisis. This has affected the entire economy of the country. To tell the truth, the managerial weaknesses of the two banks constitute one of the main reasons for the volume of the bad debts of the two banks to reach to the present level. These two banks had started their banking services about six decades ago with service motives. Had they been able to improve themselves in accordance with the changing times, they would not have faced the present problem.

Indeed, the two banks would not have simultaneously faced the present crisis had they been able to move ahead by working according to the system established by the Nepal Rastra Bank for the past 15 to 20 years, or by working according to the spirit underlying the laws and rules promulgated during the period with a view to ensuring financial reforms. Even while protecting their glorious history of meeting their social obligations and working with social service motives, the Nepal Bank Ltd. and the Rastriya Banijya Bank should have strengthened their competitiveness in view of the types of competition being seen in the banking sector these days. However, it is obvious that they have failed to do so.

The steps taken by the commercial banks to recover their investments and ensure their financial success must be taken as positive steps. We must not forget that banks simply play the role of an intermediary in financial transactions. In other words, these banks have been collecting the savings of farmers, employees, housewives and even children from Mechi to Mahakali and using the money so collected to supply loans to entrepreneurs according to their need. It is mandatory for these banks to return the money so collected from those farmers, housewives and children, that is, from the savers, as and when they want their money back.

The question is, how can the banks return the money collected by them from the savers if those who borrow from them do not repay the same ? It is equally essential for all the parties to observe financial discipline in order to enable the banks to fulfill their obligations toward the savers. As such, the general principles of banking that banks have to return the money collected by them from the savers as and when they want it back and debtors have to repay their debts on time must never be made subjects of a debate.

One of the most complicated problems facing the banking sector of the country at present is the tendency of not repaying bank loans even when in a position to do so. Entrepreneurs who are actually facing a crisis are becoming victims of this fatal tendency. Truly speaking, two types of tendencies are being seen in the country these days - one is represented by those who want to repay bank loans, and the other by those who do not want to do so. Indeed, a group of entrepreneurs want to repay bank loans but are failing to do so because of the crisis facing their business. The other group of entrepreneurs, however, are not repaying bank loans intentionally, as they aim at cheating the banks in a planned manner. It is because of this latter group of entrepreneurs that the first group of entrepreneurs who are actually facing a crisis are suffering even when they qualify for some immediate relief.

The sick industries of the country can certainly be provided with some relief if both the banks and the debtors behave honestly on issues concerning debt recovery and repayment. Indeed, about Rs 10 billion can be raised even now if we are to work with the feeling that bank loans must be repaid. This can be utilized to provide relief to revive the truly crisis-ridden small and medium industries, as well as the hotels coming under the tourism industry. Obviously, the main issue at the moment is financial honesty.

Yet another problem facing our entrepreneurs is their failure to assure the banks even at a time when they are facing serious problems in terms of their business. The atmosphere of distrust that has emerged as a result of the bad debt episode is victimizing those who are actually facing a problem. To get rid of this problem, it will be appropriate for the concerned entrepreneurs to prove their industries to be truly sick. This will also make it possible for them to get some relief from the government.

On top of this, it will certainly be in the long-term interests of the financial sector if a well-regulated system is developed to carry out all the functions. Now that the country has joined the World Trade Organization, our commercial banks will lag behind in competition if they fail to meet the international standards. If that happens, they will definitely land in a whirlpool of crises. For the time being, however, we should hope that the effective implementation of the financial sector reform programs put forth for reforming the banking sector will help us to bring about medium-term and long-term reforms in this sector.

(Khetan is an industrialist and is associated with the Confederation of Nepalese Industries)