Times are difficult for banks and financial institutions at present. International and domestic economic uncertainties have surrounded the Nepali financial system creating problems like a severe shortage of investment-grade liquidity, skyrocketing inflation rate, and problems in the external sector of the economy affecting the profits of banks. Anil Kumar Upadhyay, the President of Nepal Bankers’ Association and CEO of the Agricultural Development Bank, says that the current focus of banks is to sustain rather than earn profits. In a conversation with ApEx, he talked about the current problems surrounding the banking system, emerging challenges to the banks, and digitization, among other topics. Excerpts: Of late, umbrella organizations of the private sector have upped their ante against banks, accusing them of charging high-interest rates. As the President of Nepal Bankers’ Association, do you think that banks have treated businesses in unjust ways as claimed by businesspersons? The banking sector works under certain regulatory frameworks of the Nepal Rastra Bank. But those various regulations are applicable in different situations. When there is adequate liquidity in the banking system, we can have various offers to our customers but when the situation is difficult like at present, we are required to become very careful to sustain. So, this is not an injustice as said by businesspersons. This is just a result of the situation.

Unless any bank demands interest rates higher than allowed by the central bank, it is not unjust.

We have seen a shortage of liquidity at different times over the past couple of years. How is the current situation? Why does the acute shortage of investment-grade liquidity continue despite a sharp decline in demand for loans and a hike in deposit interest rates? Currently, the liquidity situation has improved. The recent festive season and the elections have helped the flow of cash in the market. But the fact is the banks have not aggressively invested and lent money to borrowers. Yet, we have a shortage of investment-grade liquidity because there is a huge gap in financial resources and demand for loans. It will take some time to get things back on track. These days, banks are more into portfolio management so that we would not hamper regulations. Given the current economic slowdown as well as the prolonged liquidity crunch, what major challenges do you anticipate for the banking sector in this fiscal year? The major challenges are the continued shortage of resources, inflationary pressure, and impacts of the global and domestic economic recessions. Besides, the adaptation of new technologies and the transfer of data from paper to online networks is also challenging. The expectations and demands of customers are also high which will be a challenge for us to meet. Unless there is wise management of resources, the banking sector will suffer during these uncertain times. Amid a slowdown in economic activities, are we seeing a surge in non-performing loans (NPLs) of banks as debtors are struggling to repay the loans? We have to extend loans no matter what the situation is. Even during the height of the Covid-19 pandemic, we disbursed loans. We have been helping customers whenever they are in need. However, we have fewer resources and this is a problematic situation. Now, when we didn’t receive installments and interest payments, we had to search for new incomes. There are no other choices left for us. The central bank has recently reduced the spread rate in the first quarterly review of the monetary policy. What impact will it have on the banking sector, especially on profitability? Definitely, the new monetary arrangement will reduce the profits of banks. However, given the current uncertain global economic situation, we are more focused on sustainability than on earning profits. What kind of impact will the recent mergers and acquisitions make in the Nepali banking sector? Are we heading towards large but few banks in our system? In other countries, whenever a bank sees a continuous decline in profit, has less capital, or is not in a position to afford the expenses, it opts to merge with another bank. In Nepal too, due to problems in the economy, our banks have felt the same. When the banks go for a merger, it reduces the expenses in various aspects but increases the size of the business along with the quality and service. Mergers provide a chance to improve competitiveness among organizations. So, it feels like we are really heading for a large but few banks in the system and I think it is good for the industry. Digital banking has taken a new direction post-Covid-19 pandemic. How is your bank digitizing products and services for customers? How will digitization shape banking in Nepal in the coming days?  Digitization is the biggest achievement in the banking sector after the Covid-19 pandemic. In the Asia-Pacific region, I think Nepal is after India to progress digitally. In our bank too, we have updated ourselves digitally. Previously, we had only around 10,000 mobile user customers but now, this number has reached around half a million. So, we have extended our online and QR-based services in rural areas too. For the farmers, we have added content and information related to agriculture in our bank app. It provides a situation of farming, market and weather. We are also soon introducing a mobile loan service. Besides, like other banks, we have provided all the banking facilities to our customers digitally.