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Banking on social responsibility


SAGAR SJB RANA


On 30 September, 2000, Nepal Rastra Bank (NRB) issued a notice in The Economist seeking proposals from applicants wanting to take over two state-owned banks, Nepal Bank Ltd (NBL) and Rastriya Banijya Bank (RBB), on management contracts. The government had decided to hand over the management of the banks to firms with banking experience, a move based on, and influenced by, a report of KPMG Barnet which declared the two banks to be technically insolvent. So far, 41 firms are said to have submitted applications for the contract, and the government is preparing to hand over one of the banks by April 2001.

This rapid development is in line with the policy of privatisation of government-owned entities adopted some ten years ago. In the past two or three decades, liberalisation, globalisation and privatisation have become the mantras of the Reagan-Thatcher free-market doctrine strongly pushed by the industrialised countries and its local advocates in many developing countries. Nepal is no exception, and in its single-minded pursuit of liberalisation, voices of caution have been trampled. Responsible people are making extremely subjective statements not backed by facts, and these are often headlined by the media. One such statement illustrates this market fundamentalism. The CEO of a leading international bank recently pontificated thus: There is no government bank anywhere in the world that is profitable.

This is quite incorrect. Nepal Bank Ltd in fact made steady progress under joint ownership: majority share holdings and management controlled by the government, and only a minority share held by private sector investors. And this occurred despite having to serve the needs of remote areas through expansion of branches covering all but a few districts of the country.

That was until 1995-96 when the government transferred a part of its NBL shares to the private sector, effectively abandoning its controlling majority holdings. The appointment of the chair and the majority of the directors, until then the preserve of the government, was now handled by private investors. The decline of NBL is in part linked with this transfer, and it vividly showed that parastatals operating under government control can actually become less efficient after they are handed over to the private sector. But the other reason for the decline of NBL is the entry of new commercial banks which are not bound by the condition that they have to provide credit to the less-profitable remote areas of the country. This burden was confined to government-owned banks while new banks could choose prime areas of business and skim the cream of profitability.

Nepal Bank Ltd made steady progress under joint ownership: majority share holdings and management controlled by the government, and only a minority share held by private sector investors. And this occurred despite having to serve the needs of remote areas.

This is not an argument against privatisation per se. But if the decision-making authorities, in their wisdom, see no other alternative to handing over management to private bidders, there should at least be a provision in the management contract to ensure that the less profitable branches or even those running at loss, should remain in operation. These branches can continue to be subsidised by the profit of other branches. The responsibility of providing banking services in less affluent and remote areas should be shared by all commercial banks.

Why should the remote and needy areas of the country be deprived of essential services such as banking? Providing basic services to neglected areas may work out to be much cheaper for the government in the long term than buying arms and ammunition to quell the ongoing insurgency.

(Sagar SJB Rana is President of the Nepali Congress Lalitpur District Committee. He is Secretary General of the Centre for Consolidation of Democracy and was a Director of Nepal Bank Ltd, 1980-88.)


LATEST ISSUE
638
(11 JAN 2013 - 17 JAN 2013)


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