"We are exploring new ways to be competitive in the market side-by-side with commercial banks"; Interview with Kiran Kumar Shrestha, CEO of Rastriya Banijya Bank

Rastriya Banijya Bank Limited (RBBL) has a history of serving Nepalese people far and wide across the country over more than half a century now. Established in 2022 B.S.,over its history the Bank witnessed many changes, stressful years of business, the jeopardy of existence, many lessons learnt and successful transition towards a strong, efficient and competitive Bank.The steps put forth by Bank for exploring business avenues, reinforcing the revenue generating points, ensuring acquisition of modern technologies and systematic process, automating  its systems, processes and procedures, implementing better cost control and maintaining  financial discipline and a customer oriented approach have resulted to stand itself strong in the competitive environment.

Kiran Kumar Shrestha, CEO of Rastriya Banijya Bank Limited (RBBL) has completed two successful years in RBBL and in that period we’ve seen positive changes in the overall functioning of the Bank.  It has now been able to address the current requirements of the market which are clearly reflected in the Banks fourth quarter results in measurable and quantifiable terms. It has not only improved, but surpassed top earning banks of the industry in terms of branch network, net profits, operating profit and many other indicators. In this back drop Sandeep Rana, Aakriti Thakali and Krishna Khatiwada from Sharesansar caught up with Mr. Kiran Kumar Shrestha. The excerpts of the interview are:

Rastriya Banijya Bank has secured top position in most indicators in the last quarter’s report of commercial banks. What would you attribute your success to?

Yes, we are very happy and satisfied with the results that we’ve achieved. However it wasn’t a surprise as we had already planned for it. At the start of this year we had planned to achieve a net profit target of Rs. 4 Billion. Apart from planning there are specific factors like continuous lending, treasury returns, recovery of bad loans, etc.

How has the merger with NIDC affected in terms of financial standing and operational effectiveness?

Since both of the banks, NIDC and RBBL were government banks there wasn’t much problem in terms of operation. Similarly, the size of Human Resource in NIDC was small and they had also offered them retirement schemes so there was a peaceful exit of employees who had neared age of retirement. The important thing to note is that NIDC in itself was a specialized bank, established in 2016 B.S. So when we merged with NIDC, its reputation has also been transferred and has given us an edge in the market.

Similarly from the financial standpoint, the Paid-up capital has increased from Rs 8.58 Billion to Rs.9.04 Billion and consequent changes in other balance sheet figures. The most phenomenal change we’ve realized is in the assets location and size. NIDC had assets in Kathmandu and numerous other parts of the country in prime locations. However we did have a negative impact on the Non-performing Assets/Loan (NPA/NPL). NIDC had a NPA of above 6%, which diluted with ours when we merged. Other than that our branch network has increased, the capacity has increased and the business also has increased.

RBBL is still fully government owned and at times we’ve heard of change in ownership. So can we expect that it will soon float IPO for general public?

The decision of floating 30% is still there and will be implemented in suitable time.

RBBL was seen relatively stable even when the entire industry was drained of liquidity. What is your secret? Is it because the government money is deposited in your bank prior to spending?

No, government’s money is not deposited in our banks prior to spending, but it’s the other way we disburse on behalf of GON, the government’s expenses first and get reimbursed a day later. Normally we do prefunding for governments expenditures and pension payments. But surely where there is revenue collections they come first at our end and we repay to GON treasury the next day. Yes, Government funds have surely helped us, but that is not the only thing in the whole picture. We were able to maintain a steady liquidity stance in our bank because of these factors:

• The NRB has fixed the CCD ratio at 80%, but in our internal planning we’ve kept the CD (credit to deposit) ratio alone at 75%.
• We’ve increased our credit portfolio in steady and stable manner throughout the year. We had planned for Rs 122 Billion, and we closed at Rs 121 Billion.
• Our deposit mix is hugely concentrated towards scattered individual savings, which has given us the edge and benefit of less volatility.

Thus, because of these countable factors, we’ve been able to manage our liquidity and credit disbursement even when the entire market was facing a hard time.

Although this year’s Monetary Policy has mentioned nothing in particular, 28 commercial banks still look like a big number. Do you agree that a few state owned and few private banks will be sufficient? Is RBBL going for any new mergers or acquisitions?

I agree that given the size of our economy, 28 banks are still too much. That is precisely why NRB was insisting on mergers and acquisitions (M&A) through the minimum paid-up capital requirement. It brought visible changes in the numbers of ‘B’, ‘C’ and ‘D’ class BFIs but the number of commercial banks decreased from 31 to 28 only. So I think we still need more consolidation.

However, taking RBBL into consideration, we haven’t planned any new M&A in this fiscal year. Maybe in future, we are optimistic for both vertical and horizontal expansion.

RBBL is currently in way of replacing older generation’s HR with younger graduates. How is the transition so far?

This is a historical year for RBBL in terms of Human Resource as we are going through a major transformation. The prime reason is because a lot of employees that were hired in mass during the year 2044/45 are retiring now. So the replacement I’m talking about isn’t only in the junior level, the D-CEO, DGM, Chief Managers and Senior Managers are also retiring which has opened up a lot of positions. So far, we’ve already hired 1,260 new employees and 550 are soon to join us, the opening will be announced in  Ashwin.

So 1,810 new people are coming in and around 400 existing employees have crossed over 10 years in RBB. We are expecting a major transformation from this group of human resources.

What kind of challenges and opportunities do you see in this mass replacement?

The opportunities are countless, with the huge number of young individuals joining us. I’m expecting a lot of rigorous, creative and hardworking minds. Not just that they will bring modern way of thinking into our system, which might give us an opportunity to transform ourselves. Similarly, they’ll have a stronger inclination and adaptability towards newer and more advanced technology.

On the other hand, the challenges I see are in terms of training them and teaching them our organizational culture and a transition for short period to fulfill the experience gap arisen due to mass exit. Keeping this very challenge in mind, we’ve allocated a budget of Rs 90 Million in Human Capital development. The trainings will be of three types:

• In house training: We have an in-house training department that will be providing on-the-job trainings focusing on specific topics like operation, compliance and so on.
• Mass training: We’ve recently signed a MoU with National Banking Institute (NBI) to provide trainings to our employees. These trainings are of three types:
  • We are present in 74 districts. So, any training program that NBI has on any of these districts regarding any banking related topic, our employees will be a part of it.
  • We have set 10 hubs that spread across the country, where all our employees from all level will receive training.
  • NBI will also provide course based trainings that are relevant and useful.
• Foreign training: We have agreement with NIBM in Pune, AIT in Thailand and other similar training organizations for periodic training. Similarly for higher level officers we’re sending them to Indonesia, Vietnam etc. for topic-specific trainings.

The technology being used in RBBL is still not upto the industry standard as newer and more secure technologies have come to market. When is RBBL going to implement new system?

Since we’re talking about RBBL we have to acknowledge the fact that we’ve come from a time where everything was completely manual and there was the system of “Dhaddas” and we’ve been in that system for around 40 years. Keeping that into perspective, we have to realize that it is easier to start anew then to change.

Currently we’re using Pumori 3. It may not be the industry standard but isn’t that bad either. However we do have realized that it is not enough to withstand the current competition in the market and the size of our business. We now stand at a deposit base of Rs 169 Billion and a credit base of Rs 121 Billion with around 26 lakh depositors and 3.5 lakh borrowers as on Ashadh 2075.

Considering all these aspects we are moving forward for a system audit and gap analysis of the current system. Once the audit is done, based on the results we will either upgrade the current system or replace it with newer one whichever best fits our requirement.

RBBL’s base rate is lowest of the industry at 6.2% long with the interest in savings and FD. In such fierce competition, how have you managed to keep your customers at such lower rates?

If we look at it from the side of deposits only then yes it is low, but that doesn’t give a fair view. We are providing lower rates on deposits, but at the same time our loans are also cheaper. Even among the deposits, only the normal accounts have lower rates. If you look at the specialized accounts we are also providing up to 11% in Fixed Deposits and 4.25% on certain special savings. So in this strategic manner we have been able to retain our customers.

What has RBB planned for this year?

Our first and foremost plan is to reach all 77 districts of the country and spread financial reach to all. Similarly, we’ve also come up with our “Smart RBB, Clean RBB” campaign. Breaking it down it can be described as:

Smart RBB: Like we’ve already discussed, given the current market scenario it is of paramount importance for RBB to be competitive now. In addition, we can’t compete with the same mindset that we had a decade back, we have to be smart. Now for us to be smart, we’re bringing in young individuals and we’re also looking forward to upgrade ourselves from technological standpoint.

Clean RBB: We have numerous pending issues dating back to the insurgency period. At that time we had to close branches overnight, some were burnt and many documents were lost. So all those pending issues will be cleared this Fiscal Year and the bad loans will also be written off. In this manner we’ll create a clean RBB.

In addition to smart and clean RBB, we also have aimed to be a pioneer in lending to the priority sectors specified by NRB. The goal is to not just meet the required percentages but go above that, be it in Hydro, be it in Agriculture, be it in Tourism or be it for deprived sectors.

Tell us something about the merchant banking wing of your company?  What activities it is involved in so far? Is RBB Merchant banking mulling over to get mutual fund soon?

RBB Merchant Bank is our full subsidiary and has just begun its operation. So it is still in its initial phase and is working on primary functions like RTS, Portfolio management and the like. It hasn’t fully moved out yet as there still a lot of policies, procedures and guidelines to work out. Similarly they are also proposing a Mutual Fund of RBB and we’re looking into it.

How do you see the overall flow of funds in the market for this Fiscal Year?

I am optimistic about it and I think it will increase because:

• The size of capital expenditure in this year’s budget has increased and at the same time the pattern to spend has also changed. So we can expect timely expenditure from government.
• The political unrest is over and it seems that the government will be stable. So I think there will be no hindrances in capital spending from this front too.

You have completed 2 years in RBB and prior to that you’ve been in Nepal Bank. Working in two banks with government stake, how has been your journey so far?

I started my career from Nepal Bank and served there for around 28 to 29 years and after that I joined Rastriya Banijya Bank Limited. What I have witnessed and internalized so far is that government organization, like any other organization, has its own set of pros and cons. The positive side is being a government bank there is general trust from the public. Similarly, having the government itself on the support system gives us confidence and assurance on the system’s reliability.

However, having looked also at the other side of the coin, working at Government also has cons. Being a government bank, we have to work with numerous government agencies and follow strict procedures which hinder the speed of our decision making. Similarly, unlike other banks we are accountable to many other agencies apart from NRB like the Commission of Investigation of Abuse of Authority (CIAA), the office of auditor general and so on. Thus in many situations, our employees are very cautious before making a move. They always look for rules and by-laws before doing anything, which in a way makes us slower than other banks.

So like I said, the details might vary but there will always be pros and cons in every organization.

As a banker and the CEO of Rastriya Banijya Bank Limited, what is your message to the young generation who are entering the market right now?

In Nepal, there is a huge scope for banking and not just for now, but for the next 20 years. Right now we’ve reached 753 local bodies and the total banking penetration stands at around 40% to 45%. So we have huge scope to touch the remaining 50-55% of the country either as a banker or as a financial educator.

With the establishment of federal states we’ve reached 753 local bodies, but each of those bodies comprises about 6 to 7 wards. This means there are still more than 5000 places where we need to reach and for that the young generation of today is our best hope.

Further I would like to put something forward that with the reinforced strength of capital, new systems policies procedures and technology put in place for its functioning, the Bank has great potential to lead the Nepalese Banking market now. It has now been operating with a clear vision for growth and efficiency. It will leave no stone unturned to serve and reach the Nepalese people with its services and ease of access. It seeks expansion both in domestic and foreign fronts, tapping domestic and international banking markets, technologically upgrade its systems, manage risk efficiently and continue strengthening good corporate governance. Customer service and satisfaction are our priority nonetheless growth is sought from un-served areas becoming a vehicle for economic change.