Anil Gyawali is chief executive officer of Global Bank Limited. He embarked on his career 26 years ago when he joined Nabil bank where he served for 12 years before joining City Group. He worked with City Group for 12 years including six years in its New Dehli-based office. He is with Global Bank for the past two years now. He talked to The Kathmandu Post on the current situation of the banking sector, the recently announced monetary policy and Global’s plan for the current fiscal year. Excerpts:

The NRB governor recently announced that the liquidity problem in the banking system was over. Is that a fact?
Statistics show that deposits have increased but lending has not. Historically, liquidity remains in surplus in the first quarter of the fiscal year. As the governor said, the liquidity pressure is low at the moment. But we are yet to find out if the current liquidity growth is a permanent or temporary one. Banks have not issue loans for the last eight months. Local liquidity might have gone up due to quantitative restrictions on certain goods including gold. After the first quarter, banks may go ambitiously into lending; the interest rate on deposits has started to decline which may encourage capital flight. Definitely, there is an improvement in liquidity. But time will tell if it is sustainable one.

However is the liquidity situation in your bank as of the fourth quarter of the last fiscal year?
Our credit and deposits ratio including core capital stands at 77.8 percent, but only credit and deposit ratio stands at 86 percent. It is a comfortable liquidity position. Our total deposits have reached Rs. 15 billion as of the fourth quarter of the last fiscal year from Rs. 13.44 billion in the third quarter.

Where are deposits coming from?
Remittance is one of the main sources of deposits. Individual and institutional fixed deposits have gone up. Call deposits from development banks, finance companies and cooperatives have also gone up. Expenditure of government resources at the end of the last fiscal year might have contributed to the soaring deposits in the banking system. NRB's import curtailing measures might have also contributed to maintaining savings that ultimately remained as deposits.

The governor said that a higher interest rate in Nepali banks compared to Indian banks in the bordering areas also helped to increase deposits. How true is it?
It may be true, but Global Bank has not experienced a surge in deposits in the bordering branches between Nepal and India as a result of higher interest rate at Nepali banks compared to Indian banks.

Banks had suspended new lending for several months. Have you started it?
We have continued small lending although our main focus was to increase deposits. This year too, we have no plans to go for large projects but small and medium enterprises (SME) and the retail sector. It is not due to the uncomfortable liquidity situation but our focus area has changed.

Some banks have started decreasing the interest rate with the growing amount of deposits. Are you following the trend?
We have not decreased the interest rate so far. But I think the existing interest rate on deposits and credit is not good for the national economy with businesses requiring loans at a cheaper rate of interest. We need to reduce the interest rate on deposits which will help us to decrease the interest on lending too. Global Bank is also thinking along these lines.

What is your opinion on the new monetary policy?
I believe NRB may have made provisions in the monetary policy to ensure healthy development of the financial system. But I have some reservations. The provision that the BFIs should get prior approval of the NRB before opening new branches does not suit the market economy. I think it does not make much difference with the presence of many branches in a single area provided there are enough resources to manage the branches. It would have been better if the NRB had set certain criteria instead of making such a provision.

Nepal Bankers’ Association has, however, supported the restrictions on new banks.
The NRB should decide how many banks are feasible in the country so that the banking system will not face a systemic risk. It is not necessary to impose restriction on new banks if they help people to have better access to banking services. I don’t think Nepal Bankers’ Association said new banks should not be allowed but the NBA may have been concerned about the risk to the system with a maximum number of banks.

What is your view on NRB allowing promoters to put up to 50 percent shares as collateral to get loans from other banks?
NRB has reasoned that it is a measure to help banks in prudent risk management. I cannot say if it is right or wrong. Promoters definitely want their assets to be used in whatever way they want. I think NRB may have allowed putting 50 percent shares as collateral instead of restricting the practice fully as a balancing act. I think we should not take the NRB step otherwise.

The monetary policy also envisions restricting salary and benefits of chief executive officers and other high ranking officials of banks and financial institutions (BFIs). What do you have to say on this?
It is against the market principle. If it is so, it is better to leave the issue to the market. It is not a matter for the regulator to be involved. It is better to restrict the situation if anybody fixes his or her salary by himself/herself. It is not good if there is an independent board to decide on salary and benefits. If restriction is imposed, all the sectors should come under this purview, not only bankers. The restriction may discourage talents to be more ambitious. To justify the salary cuts, the example of the United States is given. But, there is no salary cut in the US, but other facilities such as bonus, share options and other benefits that usually remain colossal.

Of late, there have been problems in banks’ boards. What is your view on this?
I think allowing promoters’ shares to be traded as public can help in this regard because board members may depart from the organisation by selling their shares. Now, they cannot leave the organisation even though they are failing to reconcile.

What is your plan for this fiscal year?
We will go for consolidation. We have 28 branches and we think it is enough. We want to provide more value added service in technology. We have recently launched the credit card which helps get information on the credits on mobile phones.

source: The Kathmandu Post (2010),"Our focus is SMEs this year", The Kathmandu Post, 5 August 2010