Rajendra Kumar Khetan is the chairman of Laxmi Bank Limited. He is also a Senate member of Kathmandu University, Honorary consul of Republic of Portugal, and president of Nepal Britain Chambers of Commerce & Industry. He is also an avid investor in the secondary share market of Nepal. ShareSansar team met with Mr. Khetan to discuss current issues in Nepal.
- The country has received a new prime minister, what is your take on this?
The new prime minister represents a large majority of the public’s mandate. There aren’t many political problems, legal obstructions, and constitutional hurdles. The problems lie in the economic sector. There is a need for employment, growth in employment, and expansion of the service sector. There is also a wide gap between demand and supply. In the midst of all this there is a barrier in the form of political bureaucratic hassle.
- What is your analysis of the current economic state of the country?
There is both demand and supply for anything in this country. There are people on the supply side willing to fulfill those demands. We just need to put both of them together on the same track. There is no lack of technology, finance, laws and regulations but there is lack of implementation. So, we need to be able to coordinate between all these existing features to make the economic state of the country better.
- What effect did the natural disaster have on the overall business sector of Nepal?
We faced two disasters, one a natural disaster and the other a political disaster, business of four months have been wiped out. In 8 months we have to do our best to recover that lost business. We are optimistic and hopeful that we will be able to recover our losses. Over all we may be able to recover 1 or 2 month worth of business provided that there is stability in the country in remaining eight month of the fiscal year.
- If you have to put a price tag on the 4 months wipe out, what would that be?
The business lost in 4 months would add a cost of 15 to 25% of usual cost to run a business.
- What is your view regarding the direction of the NRB to raise the paid up capital of the commercial banks?
I immediately made my views public on Facebook welcoming the requirement to raise the paid of capital of BFIs. We (Laxmi Bank Ltd) are committed to reach it within the stated time frame.
- As the chairman of Laxmi Bank Ltd, what are you plans to raise the paid up capital of Laxmi Bank?
First of all in March of 2014, we had already decided to raise our capital to Rs 5 arba in five years which was endorsed by the Laxmi bank’s AGM. Now after monetary policy 2072/73, we will reach paid up capital of Rs 8 arba in two years.
Right now we have a paid up capital of Rs 3.03 arba and we are issuing 1:1 right shares. If we inter into a merger, the rights issue will have minor adjustments. Through merger and/or right issue we will double our capital to Rs 6.06 arba. We will give 15% stock dividend and make our capital Rs 6.97 arba. We will issue another stock dividend of 15% in the final year and our capital will reach Rs 8.01 arba. Our final plan is actually to make our paid up capital Rs. 10 arba within 5 years. We are so committed to reaching that goal that we will not issue cash dividend until we reach Rs 10 arba paid up capital.
- What impact will mergers have on the rights issue?
We do not need mergers and acquisitions to reach the 8 billion paid up target set by the NRB. We are not very optimistic about merger and it is not our first choice. We are not actively looking for a merger. If we enter into a merger, then 50% of the capital will go to the reserve fund. If we merge with a few finance companies or development banks, the funds of Rs 20 to Rs 30 crores will not make a huge difference in our planned right issue of 1:1.
- Why is the bank focusing primarily on right issue? Is this the best way to raise capital?
The first reason is that our group (Khetan Group) is a group with high liquidity. We are the only business house that has no liabilities and are cash rich. We can chip in money without taking loan from the bank.
By investing in the rights issue we can double our money in a very short time. However, just doubling our capital does not double our business. That will take time. We have already begun preparations to grow our business accordingly.
We have already revised our budget for this fiscal year. In near future we will have raised our capital from Rs 3 arba to Rs 6 arba. We have a new strategic financial plan. We are ahead in the game with a robust business plan to sustain the increase in the paid up capital. Furthermore, 100% of promoters are willing and eager to invest in Laxmi Bank which means the bank is credible.
- The Nepalese stock market is very volatile. Investors seek returns immediately. How is Laxmi Bank going to address this issue?
The immediate return seeking behavior of the investors is wrong. Investors should rather see if a company is growing or not and what is the actual worth (shareholder fund) of the company. The volatility in the market is a result of not just the dividend expectation of the investors but also the political scenario of the country.
We want a company’s growth and its stock price to be strongly related. This trend is slowly happening. We are a stable bank rather than an institution eagerly involved in raising our stock price in the share market. We strongly believe that the share price of the company should be allowed to grow naturally for a long term benefit to the investor.
- Citizen Investment Trust (CIT) has 9% stake in Laxmi bank, is CIT ready to increase its investment in the bank?
They are more than happy. In fact, they want to invest more in the company.
- What is the current situation of Laxmi bank? NPL is up from 1.15 to 1.27, EPS is down from 26.07 to 17.61 that too before 30% right capitalization, operating and net profit both are down.
This should not be taken as a regular scenario. We have been making profit; the only thing is that we have had a few cases of default which we will be managing this year. We are confident that we will recover our money.
We are not an aggressive bank. We don’t look at Laxmi bank tomorrow, we rather look at Laxmi bank 10 years down the road.
- What are the strengths of Laxmi bank Ltd? Where do you see Laxmi Bank in next five years?
We have two buildings in Kathmandu, one in Hattisar and another in Narayan Gopal Chowk. They increase our asset value. We have our own mutual fund. We also have our subsidiaries Laxmi capital and Laxmi Laghubitta. We also have stake in Life Insurance, Non-Life Insurance, Nepal Banking Institutes, and Credit Information Bureau. Except brokering of shares we provide almost all financial services. In 5 years, we see ourselves as proving all financial services to our customers. There are many banks who still do not own their own building. There are hardly 2 or 3 banks that are in a position to give all expansive financial services that Laxmi Bank seeks to provide.
We were a conservative bank and we are slowly becoming more aggressive. We might not be able to cover all 75 districts but within next 3 years we plan to double our number of branches.
We intend to have all the services available in our central office to be available in our trunk offices as well.
- What is the current status of prime life insurance company? Prime life hasn’t held its AGM for three years including this one and hasn’t declared dividends for the last 2 years, when will the AGM be held?
I held the AGM until I was the chairman at Prime Life. I made sure that I conducted the company’s AGM on time. There are two things that might be the reason for not being able to conduct the AGM. First, we had a long transition period between the last CEO and the current CEO. The qualification for the CEO position was set very high and we had a hard time acquiring a qualified CEO.
The performance of the company is still healthy. In fact, although we have not been able to distribute dividends, we have funds equivalent to 50% of the capital in the shareholders’ fund. You can expect heavy dividend from the company soon.
Another problem is that there are no actuaries in Nepal to evaluate life insurance companies. We have had a few technical difficulties with our actuary and that has contributed to this delay. Rest assured that the shareholders’ profit is safe in the shareholders’ fund.
- As an investor, what kind of suggestion do you have for retail investors who are entering the secondary share market of Nepal?
I have three recommendations for the retail investors in our market or who are new to our market.
First, investors must look into a company’s book value, growth and stock price to find stocks that have a balance between these three things.
Second, investors must book their profits and jump to another stock so that they don’t lose their money. They should use only their profit to take risk so that if the market goes down their capital is safe.
Third, investors must not look at the stock market as a place to gamble.
- What stocks do you have investments in at the moment?
I am a medium to long term investor. I have invested in moderately valued blue chip banking stocks such as Nepal Investment Bank, Nepal Bank Limited, Nepal SBI Bank and Himalayan Bank. I have also invested in all of the mutual funds. My goal is to invest in almost all Banking institutions in Nepal.
