As the country makes the tran­sition to the federal set-up, the financial sector is also trying to come to terms with the new decen­tralized system of government. In this connection, Sunny Mahat talk­ed to Gyanendra P Dhungana, Pres­ident of the Nepal Bankers Associa­tion and CEO of Nepal Bangladesh Bank, on how the country’s com­mercial banks are preparing.

 

Excerpts:

 

How are the commercial banks in Nepal adjusting to a federal set-up?

 

So far there have been no spe­cific directives from the regulator in this matter. Having said that, as the banks already cater to peo­ple from all parts of the country, I think it’s more a question of adjustment than preparation. How­ever, banking sector will have to consolidate its regional capacity to expand business in the states and be ready to cater to customized requirement of each state with their differentiated needs.

 

Can you talk about specific challenges commercial banks are likely to face?

 

Nepal has always been a unitary state and federalism is a new con­cept for us. Although the need to implement federalism is fairly evi­dent, its effectiveness and practical­ity is hard to gauge.

Banks have traditionally operated in a national capital centric orien­tation, with our branches reaching some select local markets outside the valley. Now with the ensuing change in governance structure, we will have to change to regional/pro­vincial or statewide setup. This will entail a big expansion of banking manpower to begin with.

 

Are you taking it as an opportunity for expansion or a liability as your operation costs could increase?

 

It’s definitely an opportunity in the long run as the local markets might eventually emerge at state level, provided that our state-level political leadership does not waste time again in the name of transition and political development. But in the short run, our costs will surely increase as we expand operations.

 

Has the Nepal Rastra Bank issued any directives or formulated plans for commercial banks to adapt to federalism? And are they practical?

 

Like I said, until now there are no such directives from Nepal Rastra Bank. I think they will come when the regulatory authority establishes its decentralized working apparatus in the federal structure. The picture will be clear when the State Lev­el Financial Commissions and the State Level Planning Commissions are formulated and a proper vision and direction for governing financial services then emerges.

 

Will regional development banks benefit more in a decentralized Nepal?

 

The efficacy of regional devel­opment banks has already been tested. The consolidation of overall Financial Services Industry has seen many development banks merge with commercial banks or higher level financial institutions. But if there is a network of well-function­ing regional development banks in a given province, say, these regional banks will definitely have an edge as they will be local banks. This can also serve as a platform for the larger commercial banks to move in, by merging with or buying out such development banking networks, thereby increasing banking capacity as well as efficiency.