Exclusive Interview: Lila Prakash Sitaula, CEO of ADBL;ADBL to strengthen good governance practices by clearing past liabilities

Lila Prakash Sitaula is the CEO of Agricultural Development Bank since Mangsir 2071.He holds a MBA degree from TribhuvanUniversity. He started his banking career as an officer at Nepal Rastra Bank on Falgun 2044. He has served as chairman of Credit Information Bureau and Deposit and Credit Guarantee Corporation. He was also BoD member of RastriyaBeemaSansthan and Nepal Stock ExchangeLtd. He has also worked as CEO of Purbanchal Grameen Bikas Bank ltd.

1. How has the current situation affected the Banking Sector of Nepal?

It is obvious that the current crisis will have its effect on overall economy of Nepal including Bank and Financial institution. Factors such as halt in industrial activities, slowing of economic activities, difficulties in repayment of installment of loan, some of our customers have not been able to pay installments as banks are closed due to the protest and banks have not been able to create new business opportunities as planned. This will have direct effect on the turnover.

2. How has the current unrest affected ADBL?

Now as relation to the ADBL, like other banks we also have presence in Terai region of Nepal. Among these branches some of the branches have not been able to conduct full operations, and few of them have not been able to provide full service to their customers. We have devised working plan in order to minimize the effect of this Terai unrest on our banking operation. We are also focusing on creating loan assets by investing in the corporate sector in order to maintain our balance sheet.

3. What are the banks plan to meet the paid up capital requirement after the NRB has dis‑allowed the preference share?

We have notified the Ministry of Finance regarding the preference shares being disallowed from the paid up capital.We will be holding the meetings with Ministry of Finance, and Nepal Rastra Bank to discuss on this issue. First of all the government has to make some choices as they have high stakes on this bank and they are also the same party holding the Non –cumulative irredeemable preference shares worth Rs 6.43 arba.

It should not be a problem for us to reach paid up capital of Rs 8 arba if it is decided that ADBL has to reach the paid up capital requirement excluding Non –cumulative irredeemable preference shares. In such instance we will be short of about Rs 4.58 arba. Government of Nepal will invest half of it while we will easily bring the other half to surpass Rs 8 arba requirement within stipulated time frame.

4. What is happening to the taxes that are yet to be paid by ADBL to the Government of Nepal?

We have cleared our tax liabilities. We made profit of Rs 2.81 arba last fiscal year. We paid tax of Rs 1.93 arba from the profit made last year. This amount (Rs 1.93 arba) covers all the past tax dues for about seven year. We even had tax liability of Rs 51 lakhs from 2045 BS! These tax liabilities were not provisioned so the final balance sheet of ADBL may not look that pleasant. Our investors and customers understand that the ADBL is going forward with good corporate governance by clearing the liabilities.

5. What has happened to the case where employees of Swayambhu branch of ADBL misappropriated approximately Rs 34 crore?

Central Investigation Bureau has arrested the perpetrators and recovered about Rs 1 crore. We have filed an application with the insurance company to recover the lost amount in the misappropriation. Part of amount will be paid to us by the insurance company. We will also have to provision some of the amount to cover this loss.

6. The bank has not declared its dividend for last year. What dividend can shareholders expect?

This is not the right time to speculate about the dividend from last year. We are still working to audit the books from last fiscal year. At this time I do not want to go to the specifics of what our dividend might be. We will definitely declare our stand on dividend by the end of Magh 2072 but we all are working diligently to declare it by Poush 2072.

7. What has been the progress in acquiring a Strategic partner?

We are working to find strategic partner. There was no foreign strategic partner available on our modality. At an unofficial capacity we are also thinking to find local strategic partner. It is not that we have to find the foreign strategic partner. Our private sectors are well capable of running business. However, we are yet to put it officially on paper regarding the modality of finding local strategic partner, if any. At this very moment the requirement to increase paid up capital has got more priority. After we finalize the plan to reach paid up capital of Rs 8 arba, we will again prioritize to find strategic partner.

8. ADBL did a DDA (Due Diligence Audit) while it was actively looking for a strategic partner. What is the DDA valuation of the bank?

DDA was done by Ministry of Finance. ADBL even does not have a copy of that DDA report. So, I don't want to comment on this issue. However, I can assure our investors and customers that the DDA report has shown that the ADBL is in an excellent condition.

9. ADBL has the highest employee expense among all banks. What is the bank doing to address this issue?

Yes, it is true that we have the highest employee expense among all banks. As this is government owned bank, we have set of rules and guidelines to follow which increases the cost. We also have service delivery to doorstep of the villages which has increased the cost of operation. Our client base is composed of larger retail customers than corporate clients which has increased out transaction cost.

We have started to improve our efficiency and productivity. Every year as employees are retiring, we have revised our hiring practices to make it cost effective in the future.

10. The bank is sitting in a huge pile of cash. It has Rs.19 billion in hard cash sitting in its vaults. Its liquidity ratio is 33.31%, how will this be addressed?

The deposits worth Rs. 2.5 arba is about to mature in near future. We have to set aside this amount for repayment. We are also looking forward to investing in few projects which requires higher liquidity position with the bank. We have also accumulated deposits to match the liquidity requirement for consulting finance. We have 246 branches where every branch needs to hold good amount of cash as fund transfer may not happen as desired. So, the cumulative effect of these factors has put ADBL in the position of higher liquidity which should not be a concern.

11. What do you want to say to the investors of ADBL?

The management of ADBL is committed to run this organization professionally and commercially to further our strength. ADBL has a largest network among all the BFIs in Nepal. I urge all investors to have the faith on our organization while we work to make it better every day.