“The problem of liquidity will be solved once BFIs, NBA and NRB come together” An interview with Mr. Chinta Mani Siwakoti; Deputy Governor of NRB

“The job of central bank is to worry”. Alice Rivlin

Eleven consecutive days of rise in interest rates on deposits of commercial banks, revoke of Gentlemen’s Agreement by Nepal Bankers’ Association, Nepalese rupees falls to the lowest against US Dollar, two and half years since the stock market has been in a bearish trend. These were not the driven motives brought by the optimism of the newly elected stable government of the country. In the provided scenario, there could have been no institute other than central bank liable to answer all the upshots. On the same note, there could hardly have been anyone other than Mr. Chinta Mani Siwakoti, Senior Deputy Governor of Nepal Rastra Bank, who could have provided an outline of central bank’s next plan.

Mr. Siwakoti is in his 29^th year of service at Nepal Rastra Bank.  He accomplished his MBA and BL from Tribhuvan University. He further went to New Hampshire, USA for his higher studies through NRB. Mr. Siwakoti entered NRB in the post of Head Assistant in 2044 and his hard work, dedication and commitment has followed him up to the senior most position of Deputy Governor. Considering the same, on 19^th Falgun, 2072, Nepal government selected Mr. Siwakoti as the rightmost candidate for the position of deputy governor. His visit to almost 23 foreign countries has implanted confidence, experience and knowledge in policy making for a smooth financial reform in Nepalese financial market.

On this backdrop, team from ShareSansar (Mr. Sandeep Rana and Ms. Dheerusha Tiwari) discusses on five major issue of the economy with Deputy Governor; Chinta Mani Siwakoti.

The issue of increasing interest rates:

• Commercial banks are still sort of loanable funds and there is no sign that liquidity crisis in banking sector shall come to an end. Recently, NBA cancelled its previously agreed deal to maintain interest rates. Consequently, interest rates are being announced above 13%. In this context, what role can we expect NRB to play in the days ahead?

I am aware that the interest rates on deposits have escalated to 14-15% recently. The decision to be undertaken to tackle interest rate issue does not lie solely in the hand of one position or one department. The solution seeks an intensive discussion with research, regulation and legal departments along with deputy governor and governor of Nepal Rastra Bank.

The team from NRB will have its own take on the decision. I personally believe the first step should be an extensive discussion with Nepal Bankers’ Association and the concerned banks regarding the root of the issue and its prospective solutions. As per the legal provisions of an open economy like ours, banks and financial institutions are required to determine their interest rates on their own without any direct interference from central bank. However, that being said, we cannot ignore the cost that clients who are taking loans will have to incur due to the escalated rise of interest rates on deposits.

In the past years, the issue of interest rates was addressed through agreement among banks and NBA. In the upcoming weeks, NRB’s first approach towards the problem will be an intensive discussion and logical conclusion.

For the temporary term, NRB has identified new source to bring in loanable funds of Rs 3.5 arba. The state government disbursed certain budget to local level governments. These local level governments can now deposit 50% of the budget in its own account and the remaining 50% budget at Nepal Rastra Bank. For instance, if any local government was allocated an amount of Rs 10 crores, Rs 5 crores can be deposited at NRB and the remaining in its own account. As a result, the treasury position of government will reduce whereas the problem of liquidity will be addressed to a certain extent for now. This demand was initially proposed by NBA since last one year. The next prospective solution will also be undertaken considering the voice of NBA and concerned banks.

The issue of foreign loans:

• NRB has opened its gateway for commercial banks to bring in foreign loans. However, Nepal is a country whose credit rating is still not done. Foreign companies still find doing business in Nepal as daunting. In this scenario, how would you justify this move of central bank?

NRB is responsible to open the gateway for foreign loans. The responsibility has been fulfilled but there are several skepticism on this move of central bank such as how will the banks attain the loans?, how will the international banking arena trust Nepalese banks?, why are each one of them not proceeding for the foreign loans?, and many more. Let me generalize the process of acquiring foreign loan with the process of acquiring loan in domestic market of Nepal. Credit officers in commercial banks come up with a number of loan request each and every day, do they accept all the loans proposed? Of course not. Credit officers look into a number of criteria before bringing in the loan. In the similar context, international banks also need to consider different aspects such as country rating, individual bank’s rating, financial statement analysis and management culture. While some of the commercial banks might get through this process, others might not. Nevertheless, an initiation must be made. We do not promote aggressive banking so, inviting a large number of foreign loans at once is not our motive but rather bringing in productive and good loan asset is what we encourage. For instance, NMB Bank Limited has already brought a foreign loan of Rs 1.72 arba recently and is in the process of bringing in loan of Rs 3 arba. Those banks which have brought foreign loans or are in the process should set themselves as examples by complying with the contract agreement and showcase the potentiality of commercial banks of Nepal to the international market. Similarly, banks that are in joint venture with foreign banks can also bring in foreign loans through their parent company.

Conversely, I acknowledge the absence of hedging can be a major obstacle to commercial banks as they bring in foreign loans when the exchange rate has been constantly fluctuating. In response to this, NRB has prepared a framework related to hedging. So far, we have decided a certain charge will be taken from the company bringing in foreign loans. The charge will be put into a certain fund whose use can be done when dollar appreciates and Nepalese rupees depreciate. The fund will have excess money when dollar value is comparatively lower and vice versa. The framework has been presented to ministry of finance and is under discussion. 

I am quite positive about foreign loans coming into our economy. The stable government has brought in hopes among domestic and foreign businessmen. Entrepreneurship is booming in and infrastructural developments are taking place. Moreover, we have been conducting several discussion sessions with institutes such as World Bank, IMF and several international organizations on the prospective products, ways to groom the financial market and seeking solutions to the concerned problems.

The issue of inflation:

• As you mentioned about the fluctuation in exchange rate, do you think inflation will be within the announced target of 6.5%?

Undoubtedly, the constant fluctuation in dollar will largely impact inflation rate. Last year, Nepal imported petroleum products only worth Rs 172 arba. Given that the number of vehicles shall remain either constant or increase, the higher exchange rate will result in inflated imports. The same applies to other products that we have been importing. However, despite the massive imports of last year, Nepal was able to maintain its inflation within 4%. So, even this year, we are optimistic that the inflation will remain below government’s target.

The fluctuation in exchange rate is likely to impact our economic growth as well. In our economy, out of the total foreign trade composition, only 7% is exported whereas 93% is imported. In the FY 2074/76, Nepal imported products worth Rs 1243 arba whereas it exported products worth Rs 81 arba which resulted in business loss of around Rs 1162 arba. Since, we import more than we export, the pressure of higher exchange rate will impact the general public directly or indirectly.

The issue of digitization:

• Do you think our policies are contradicting when it comes to “digitization”? Our government is constantly promoting Digital Nepal whereas NRB introduced new amount limits for withdrawal (25% for credit cards, Rs 10,000 and Rs 25,000 for debit and prepaid cards, Rs 1 lakh per day for e banking).

Nepal Rastra Bank has been promoting digitization actively since last five years by installing machines, encouraging banks to bring in such products that promote digitization. The usage of ATMs, debit cards, credit cards, mobile banking, internet banking has increased tremendously. Government supported the same cause and announced Digital Nepal on 1^st of Baisakh. The mission that government undertook was incredible however, in the absence of infrastructures; the mission cannot be taken in a fast track.

On the other hand, when NRB imposes limits, it necessarily does not have to be an act of discouragement. It is rather a mechanism undertaken for prevention of unethical acts. Currently, NRB has limited cash transaction to Rs 10 lakhs per day. It necessarily does not mean NRB discourages cash payment. We rather want all the transactions above Rs 10 lakhs to be recorded in order to track information about such payments.

In the similar way, digitization platform has just begun in the Nepalese economy. The platform that is meant for the convenience of general public should not be directed towards illegal motives. Digital economy is a new subject to our general public. As of now, we have come up with the directives. For few more months, we will be in observation mode. In case of problems, we can always bring in vendors and review the made directives. Moreover, just because digital economy has been started, we cannot forgo the conventional methods of payment at once. Just as digital wallets and mobile banking are getting acceptance, cheques, ATMs should also be used. Although we have put on restrictions in some of the modes of digital payment, we have not compromised with the convenience of general public. When it comes to utility payment, general public can still execute transaction worth Rs 60 thousands.

The decision regarding restrictions is an outcome of full-fledged study of Indian, Bangladeshi and Pakistani financial market. So, the move from central bank is justified.

• In the similar context, recently Nepal Stock Exchange launched an online trading platform to general public. However, NRB imposed a limit on trading transaction to Rs 1 lakh. Now that the transaction has been imposed, critics have said it can’t be called as full-fledged online trading platform since investors need to visit broker houses to submit cheques. What views do you hold on this?

To be honest, I am not well acquainted with each and every features of the said platform. In case of such problems, the concerned party can always discuss on the said issue. NRB has several ideas to facilitate each and every kind of organizations. To add on, each and every institute including NRB is in the phase of infrastructural development. NRB is also working to establish RTGS (Real Time Gross Settlement). It is targeted to be accomplished within upcoming September. As of now, Nepal Clearing House Limited has access to transactions of only private sectors. After RTGS, government sectors transactions can also be tracked. After RTGS, we will move on to NPS (National Payment Switch). It might take 2-3 years to launch the software. However, after NPS, all the transactions being done in any nooks and corners of the country need to pass through NRB in order to reach their desired destination. Thus, it will facilitate NRB to overview each and every details of monetary transactions undertaken throughout the country. However, in order to accomplish this, we need similar software, power, capacity, backup, data management site and many more. Hence, the said issues will be addressed gradually.

The issue of future economy:

• Ten years down the line, what goals should we set for our economy? What will be the prospective challenges to attain our goals?

We are at the point of economy where we should dream. Our dreams should be such that, ten years down the lane, our economic growth will remain at around 9-10%, poverty will be minimized to 5-6%, remittance will not be the only source of income, infrastructural development will flourish, entrepreneurship will boom, FDIs will come in, and capital management will take place. We all should dream about a Prosperous Nepal and Happy Nepali. However, as we dream, we should convert those dreams into actions.

In the process, a number of challenges will come in between. The first challenge is to combat corruption from its roots. All our corporates, political parties, bureaucrats should come together in order to fight against corruption. Similarly, the next challenge will be sustainability of peace and stability in the nation. Thirdly, our laws and acts will have significant roles to play in the upcoming years. This year solely, we have 200 to 300 laws and acts to be established. These laws are required in order to establish a framework to our financial system. Finally, the next challenge would be financial literacy along with financial inclusion. Our residents are still unaware about the essence of having a bank account, the risk and return of the products delivered by banking institutes, the procedure of attaining loans or even applying in primary level shares. It is not of a surprise when a son returns from a gulf country just to find out his hard earned money has already been used with a nil balance in his account.  Moreover, we need to massive expansion of financial literacy along with financial inclusion. It is equally necessary people of each caste, geographic region, gender enjoy the same facilities. In the near future, we should aspire to become an economic citizen of Nepal.

We cannot deny these challenges that lies ahead so, we need to face them as we move along. To build a prosperous Nepal, we need to dream and work on that dream.

Our team had an insightful discussion with deputy governor; Mr. Chinta Mani Siwakoti. We hope NRB and all the financial institutes will come together to attain the set goals. We wish Mr. Siwakoti all the best for his future endeavors. We are grateful for the interview opportunity provided despite his eventful schedule.