Anil Keshary Shah, the CEO of Nabil Bank, is a known figure in Nepali banking. Excerpts of his interview with Arun Poudel on the prospects of Nepali banks and the national economy.
Nepali banks are blamed of solely focusing on profits. How do you respond?
That’s the point I have been making for some time. And I really hope somebody will listen. That’s our mool prasna, the main issue. We need clarity on the role of the banks. I think time has come that we sit together—planning commission, finance ministry, Rastra Bank, FNCCI, CNI, development and commercial bankers’ associations, experts from the World Bank and ADB, and others—and find answer to just one question: “What is the role of the financial sector in Nepal’s economic development?”
On the one hand, we can say banks are like any other industry—you go out, make as much money as you can, and pay taxes. On the other, we can say—“No, the financial sector should be like the government. Forget the money. Like the big government banks, if you are in problem, billions in taxpayer money will be spent on recapitalizing you. Just give service, forget the profit. Under every tree, there should be a bank.”
Should it be either of these? Or should things be somewhere in the middle? Once we have clarity on this, we won’t be confused about the banks’ role, and we won’t have to question if we are doing the right thing.
Banks are considered expensive for loans, yet we seem to depend almost exclusively on them. Why is that?
In other countries large corporates go directly to the public and raise money by issuing bonds. People trust them. They thus don’t need to go to the banks. But that’s not the case in Nepal. Can our corporates do that? If not, then why? If we think banks are expensive, why not go directly to the public? But our corporates can’t do it, because there is lack of confidence. Do our corporates enjoy the same level of public confidence as the banks?
What opportunities do you see in the national economy?
Let’s first talk of the hurdles. We are already free of three major hurdles that troubled our economy for so long: power cuts for up to 18 hours a day, frequently changing governments, and everyday bandas and strikes. Now we don’t have load-shedding. There is a stable government in place. I don’t remember when we last had a banda or strike.
Now the choice is open to us. Let’s not look for three new hurdles and say we cannot take the economy forward. We need to look for areas where we have core competencies, through which we can actually develop the economy.
How can banks like Nabil contribute in this?
The financial sector is like the heart of the economy. We pump capital—the economy’s blood—to different parts of the country to make those parts strong. Nabil now has seven provincial divisions. Our provincial managers are constantly in talk with the provincial chief ministers. Prosperity doesn’t come from Singha Durbar alone, but from the economic activities at the provincial levels. We are committed to look at each province separately, and we provide capital to the sectors they think of as appropriate.
You can give big speeches, but prosperity can only come if the government and private sector work together. And the financial sector works as the bridge between the two.
Where should the banks invest?
I think small to medium-sized enterprises (SMEs) form the economy’s backbone. They generate economic activities and employment at all levels. There are large corporates also, but they are limited both in number and impact compared to SMEs. Suppose one kirana pasal (grocery shop) employs one or two persons. There are hundreds of thousands of kirana pasals all over Nepal. A momo shop may employ 3-4 people. Collectively, these small businesses employ more people than the large corporates. We are focusing on these SMEs. And our focus is also that these businesses enter the formal economy—register at PAN or VAT, file taxes— so that they don’t have to go to cooperatives or money lenders.
But it must be difficult to work with the SMEs, when they are still out of the formal economy.
It’s a big challenge to bring small businesses into formal economy. But if we try to do too much too fast, it may not be good. We may scare away these businesses. They may be put off by taxes and other provisions, and turn to cooperatives and money lenders for loans. They may again descend into the informal economy. That is not good for them, or for the country. I think we need to go phase-wise here. People aren’t used to stringent rules and regulations about taxes. We cannot risk sending them back to the informal economy.
Why are banks investing so much in unproductive sectors like housing and auto?
Let us look at it differently. Most of us work hard to have a quality of life. Nobody wants to work hard only to add value to the economy and pay taxes. Everybody in the world wants to see their quality of life go up. In Nepal, there are certain perceptions about quality of life. We often think—“I would like to have my own house, instead of paying for rents all the time. I would like to take my family out on my own car or motorcycle. That’s my wish, that’s why I work so hard.”
How can you say such a feeling of wellbeing is productive or not? If one thinks it is unproductive, why should he or she work? What would they do with the money they earn? Should they just take it to the temple and offer it to the God, or to the government? If we only talk of productive sector, we can question tourism also. What does tourism actually do? Forget tourism, we should only be producing shoes.
But shouldn’t the focus be on the economy’s so-called real sectors?
I think we need to look at our economy’s core competence. Manufacturing is not one of them. We can never compete with India and China in large-scale production. For us, even large-scale producers do not generate as many jobs as the SMEs do. The SMEs directly benefit ordinary citizens, although they may not be employing 300 people all at once.
An indicator of prosperity is the welfare of a large number of people. Our prime minister has the vision of Happy Nepalis along with Prosperous Nepal. Making 10,000 people rich and the rest poor slaves doesn’t serve that objective. Instead of seeing a small group of people be super rich, wouldn’t it be great to raise living standards of a large number of Nepali people? For that, the SMEs are the key. That’s why our bank is committed to serving the SMEs