"Branch expansion of commercial banks isn't actually a threat but a good thing for us. It will develop an entire eco-system of financial market."; Find out about Development Banks' Association and Garima Bank with Govinda Pd. Dhakal

Govinda Pd. Dhakal, CEO of Garima Bikas Bank and the recently elected acting president of Development Bankers’ Association (DBAN), is a man down to earth who believes in humility and always looking at the positive side. Garima Bikas Bank has come a long way from being a 3-district development to now a national level development bank. Similarly DBAN is an association of Development Banks analogous to Nepal Bankers’ Association (NBA) of commercial banks. However, DBAN hasn’t come to that much light and there are still many questions in people’s mind regarding what it does and how it works.

So in light of both – Garima Bikas Bank’s performance and general understanding of DBAN – Sandeep Rana and Aakriti Thakali of sharesansar caught up with Govinda Prasad Dhakal. The excerpts of the interview are:

Development Bankers’ Association of Nepal (DBAN)

What type of Organization is DBAN? It’s incorporation, functions and the service provided to the members.

Development Bankers’ Association of Nepal (DBAN) is an umbrella organization for all development banks of Nepal with no political or religious influence. It has been established with the sole purpose of assisting and uplifting the development banks of all levels. So to classify some of the major functions are:

• To promote corporate governance in member banks
• To address and aid in resolving problems faced by Development banks. For example if a bank is facing liquidity shortage, then we provide necessary help and assistance that is within our authority.
• To ensure welfare of the public
• To create a bridge between banks and NRB (regulatory body). We typically focus on listening to the problems and issues of Development Banks and then take such issues to the NRB for necessary action.
• To organize necessary seminars and conferences to make the banks aware of the various directives and acts issued by the NRB and the compliance requirements.
• To provide necessary trainings to the Human Resource. We don’t do the trainings ourselves rather we co-ordinate with organizations like NBA and other organizations for organizing the training. First we identify what type of training is required and suitable for what level development bank. Then based on that need training programs are organized periodically.
• Similarly, we also organize frequent meetings with our member banks regarding the general economic scenario of the country and other issues pertinent to the Development banks. In cases where action is required we also do agreement but not in written form. However I want to clarify that this is not a cartelling organization. All the members are free to agree or disagree based on their conscience.

When was it established?

I don’t remember the exact date but it in the FY 2064/65 BS.

How is it different from NBA?

The functions and the purpose of establishment is almost same. However NBA is the association of 28 commercial banks and DBAN is the association of 30 development banks.

As mentioned in your website, different level development banks are charged different membership fee; what is the reason behind it?

The reason is their paid-up capital and their capacity. Unlike commercial banks, development banks are of different sizes. Some are of regional nature (1 to 3 districts and 4-7 districts) and some are national level. Their paid-up capital is different and so is the volume of business being carried out. Thus, based on these factors the membership charge is levied differently.

However, the service being rendered to all the banks is same and no discrimination is done.

How will the banks with their head office outside valley participate in DBAN’s programs?

It is not necessary for all to participate. We have a working committee with executive members. So for special cases where urgent meetings need to take place, all the CEOs present in Kathmandu Valley attend the meeting and discussions are carried out. Similarly for the CEOs outside the valley, we contact them and their opinion and suggestion is requested via mail.

In case of pre-planned meets, the CEOs for all member development banks come and attend as per their time feasibility.

There are rumors that development banks are facing a serious competition from commercial banks (branches of banks are spreading all over Nepal)? Won’t this be serious challenges for development bank in coming days?

The thing about competition is that, it is omnipresent. It is there even among siblings and friends. So competition is a very natural phenomenon which compels us to be better and do better. However, the point is that the competition is fruitful as long as it’s healthy. The ethics and moral good should always be in mind while entering into a competition.

My perspective towards competition is that we should focus on our good attributes and make them better rather than emphasizing others flaws. So rather than to make other banks look bad, I should be focusing on how good my service is, how good my interest rates are, how safe and secure my software and database is. With the increasing competition, the consumers will be getting better service and with that consequently the market will grow. Similarly the competition also avoid or eliminates the chances of monopoly.

But addressing the elephant in the room, yes the competition we’re getting from commercial banks in more intense than the one among ourselves (Development banks). If you see the interest rates on deposits, our rates stand at 6.5% to 7% whereas commercial banks are giving 8% on savings. They’re expanding to all parts of the country. They’re starting to mobilize in micro-investment sectors. So yes the competition is tightening but I think as long as it’s healthy, it’ll turnout good for everyone.

Don’t you think scope of work for development banks need to be increased since all National level development banks has capital of Rs. 2.50 arba now? What DBAN is doing on these issues?

Yes we do expect our scope to be widened and we also have forwarded our request to the concerned authority regarding the same. Some of the works that we can’t do now are opening a LC (Letter of Credit). Similarly there are restrictions in the acts and laws that are prohibiting the money from government accounts to be transacted through development banks. These limitations have hindered our growth in some way.

Previously it was okay because our capital was also small, our HR quality was not that high and the market coverage was also small. But today the paid-up capital of National level development banks is Rs 2.5 arba, 4 to 10 districts development banks’ is 1.2 arba and 1 to 3 districts development banks’ is 50 crore. We have grown tremendously in terms of the size.

A child isn’t given much responsibility when s/he is small as his/her capacity is also limited, but when s/he grows up their risk taking capability goes up, their diligence improves and so does their responsibilities. Similarly, development banks of Nepal aren’t infants anymore and for that reason I think our scope should also be widened.

In this regards we have no problem from NRB as they are positive, what is holding us back are the acts and the laws. So for the rectification of the same we’ve already forwarded our request. The only change we need is to replace “banks” with “banks and financial institutions” in some provisions.

What are the prospects and challenges did you see in coming days for development banks of Nepal?

Prospects:

Development banks’ area of expertise is its reach from villages to city and that is our major opportunity. Now the federal system has been fully implemented and the local bodies have been formed. So if the government starts mobilizing its budget right from the start of the Fiscal Year then this will create huge opportunities for us.

Challenges:

The major challenge development banks are facing right now is in terms of HR. We have become sort of a training agency, where fresh graduates come work a while and then transfer to commercial banks. They learn all we have to offer and at the time of implementation, they pass on to commercial banks. So this has been a major challenge for us.

The other challenge is in the area of investment. Usually, Development banks’ invest in retail sectors or small magnitude sectors whereas commercial banks’ specialize in wholesale lending and huge investments in big projects. However after the increment in the paid-up capital of commercial banks to Rs 8 arba, they have started to put their hands in micro-sectors for investment. This possesses a serious threat to us.

The greatest challenge of all is the COMPETITION. All the banks are rapidly increasing their branches and expanding their network. Banks which had 40 branches now have 110/120 branches.

Government of Nepal has target a double digit economic growth in coming 5 years, how development banks can help achieve this target by mobilizing investment in the economy?

The way I see it, every organization and individual has a part to play in the economic development of a country. Each has their own roles to play. So I think Development Banks’ role I specially focused towards mobilizing the small funds of the rural or the local areas. Our penetration is better than the commercial banks and it has been proved too. The recent liquidity shortage has affected the entire financial system, however development banks were least affected by it. This shows that our deposit portfolio comprises more of the retail money of the small savers and the general public.

In addition, we also have public’s trust. So through these means I think Development Banks have a significant role to play in Nepal’s growth.

When do you think the problem of shortage of deposit in banking system will be solved?

The reason as we see it that cause the liquidity shortage is the increasing demand of credit. The basic logic states that we take Rs 20 deposit and give out Rs 16 as loan, but what happened here that we took Rs 16 deposit and gave out Rs 20 as loan. This pushed the demand for loanable fund beyond the supply of deposit and created a shortage.

After the minimum capital requirement was increased by NRB, the banks had to toil hard to meet that requirement. However the investors and shareholders on the other hand expected the same level of return they had been receiving in the past. So the managers had the pressure to diversify their loan portfolio to increase their earning, which demanded more aggressiveness from them.

But despite the aggressiveness, the market is the same, a total amount available is the same, the remittance is the same, there is no way for the foreign funds to come, we have 80% import and in such situation the balance between the demand and supply of loanable funds went off and the shortage was created. So to offset this and to completely come back to normal I think it’ll take around 1 and half year or so.

Garima Bikas Bank (GBBL)

Based on the latest reports, Garima Bikas Bank (GBBL) has the second lowest reserve and surplus after Jyoti Bikas Bank among the National level development banks. What are your plans to improve this figure?

Garima Bikas Bank started out as a 3-district development bank and the profit we made during the initial years were distributed as cash rather than keeping in the reserve. This was a mistake that we did in that past that hurt our reserve size.

Now we are a national level development bank and as you mentioned our reserve is one of the lowest and the reason behind it is not that we are smaller but the other banks became bigger. Many big banks of our size merged with each other. We remained a 2 and they became 2+2=4 and in relation to them our reserve size seemed small.

For example, Gandaki Bikas Bank merged with Fewa Finance and Biswa Bikas Bank. All three were equivalent to our size, so obviously their reserve grew tremendously. Similarly, Om development Bank merged with Om finance and Manaslu Bikas Bank, Mahalaxmi Bikas Bank merged with Yeti Bikas Bank, Malika Bikas Bank and Siddhartha Finance. We also merged, but with smaller ones like Nilgiri Bikas Bank and Subeksha Bikas Bank. These banks had less reserve so there wasn’t much change in our reserve like the other banks’.

So the point I’m trying to make is not that they’re bad. I’m just explaining how our reserve size is smaller relative to them. The merger helped them grow and if these mergers hadn’t happened then we’d be in one of the top 3 position.

Reserves kept aside, we have the lowest NPL (Non-Performing Loan), and our ROE (Return on Equity) is one of the highest. Similarly our bank has been growing annually at a rate of 40-50%.

As the CEO of Garima Bank what are the challenges that you faced?

The main challenge that we had to face till now was the geography. In the past we went to many remote villages where there were no other banks, no internet connection and not even proper road infrastructure like Burtibaang of Beni, Darbaang of Tatopaani and remote village of Waling- Syanja. In these places there weren’t even proper roads. In some parts there still isn’t and we’re facing serious security threats regarding funds transfer.

Maybe in future other banks will go there as NRB has brought the directive to open up branches in local bodies. So to sum up the major challenge we faced was in terms of geographic accessibility and safety & security.

What makes Garima Bikas Bank stand out?

Our pride is the level of transparency that we maintain. We give high priority to corporate governance and ethical operation. Up till now we’ve diligently followed all the directives set by the NRB and have fulfilled all the compliance requirements. So even if an auditor or anyone from NRB comes today, they won’t be able to find even one point where we’ve crossed the line or compromised on quality. And this is precisely what makes us stand out.

After all the commercial banks establish their braches all around the country, won’t it create more threat for your branches at remote part?

Commercial banks going to remote places is actually good for us too. Wherever there is bank, there’ll be more business. It’s like establishing an ecosystem. So with more number of banks more business will start to flourish and with more transactions everybody will benefit. So bit by bit the market will expand and the financial eco-system, will reach all nooks and corners of the country.

Similarly, as the federal government has fully settled now more infrastructures like roads will also be developed. So even if commercial banks go to these places the competition won’t be that intense as the entire market would have grown and it will be able to hold it.

So we should look at the positive side and be happy.

Can Investors expect handsome return in coming fiscal years like previous years?

Yes of course. Last year we provided 15% and this year too we plan to give out 14% to 16%. I would also like to add that recently we added 95.5% to our capital, which is huge and even then we are capable to distribute 14% to 16% return. Even in the coming years we aim to distribute 16% to 17%, which will be above the industry average.

Yes, we are also aware that before the capital increment we used to give 20% return. So to reach that level we’ll need 1 or 2 years but it’s sure that we’ll be giving out handsome returns.

Final Note:

In the recent years few banks were declared problematic, both from development and commercial banks category. However that wasn’t because of the lack of business but the lack of ethical and moral standards of the people involved who crossed the line to fulfill their personal goals.

So the banks that remain now have been transparently communicating and transacting with their customers and regulatory bodies. So now the customers can trust and open heartedly do their business with us. I won’t say you have to choose Garima bank, but I’d like to get a chance to prove our worth. Not just Garima, all the banks are now in good standing and performing well.

In case of any grievance DBAN is just a call away. Send us your issues and we’ll address it and take necessary actions. You’ll find good and qualitative service from us.