‘The issue of Indian currency calls for a political solution’

Embarking on his professional journey in 1987 as financial analyst at International Centre for Integrated Mountain Development, Anil Keshary Shah is one of the most prominent bankers in Nepal. After holding positions like head of consumer bank and chief operation officer at Standard Chartered Bank Nepal, and then chief executive officer of Nabil Bank, Shah is currently serving in the capacity of CEO of Mega Bank. He has around a dozen accolades for his achievements in the banking sector from national and international institutions adorning his mantle. Shah has been elected to the helm of Nepal Bankers’ Association through its recently held 30th annual general meeting. The Himalayan Times caught up with Shah to discuss the challenges and opportunities facing the banking sector and his plans as he takes the leadership role in the umbrella organisation of the commercial banks in the country.


What are your expectations in your new role?

It is both an honour and privilege, and also a great challenge to be taking on the role of NBA president at a time when the country is moving towards federalism — not only political but also economic. I think the banks will have to see what their place is in the space that is given to us in the new federal structure. It’s going to be challenging, but I am looking forward to it. And I hope we’re able to leave a mark.

What will be your areas of priority?

In the short-term, my priority would be to settle the issue of INR 500 and INR 1,000 banknotes amicably. Also, we will look into dealing with the ATM security risks, along with managing the liquidity. In the medium-term, we still need to work on financial inclusion like it is being done in our neighbouring countries.

How do you plan on addressing the issue of Indian currency?

First, we have to understand that this issue was brought upon us because of the action taken by a neighbouring country. So a lot of what we can or can’t do depends on the assistance provided by the neighbouring country. This incident could also be an eye-opener for us, in that Nepalis living in Nepal should not hold large amounts of foreign currency so that whatever happens is within our control. From the banks’ point of view, we have communicated the amount of demonetised bills we have in holding and I’m sure Nepal Rastra Bank (NRB) will be able to take that. But at this point in time, there is a lot of Indian currency in the market itself. As per the regulation of Nepal, an individual can hold up to INR 25,000. It is an issue but maybe not a widespread one, in the sense that we hear a limited number of individuals are holding a large amount of now demonetised INR 500 and INR 1,000 notes. We will see what we can do, but again, it’s not only up to us or the NRB. I think this issue calls for a political solution. There are dialogues going on. So, there is no need to panic quite yet, I think.

Could you please elaborate on the liquidity crunch?

The thing is, our liquidity is very thin. Managing the liquidity at a healthy level is very challenging as it is a free market and interest rates are quoted freely by institutions. If you look at the profits of the banks, it is very encouraging. However, in the short-term, I don’t think we will be able to extend as much credit as the market demands and the rates will move up. But then, this is the short-term. Next month we could be having a totally different conversation. What also matters to a large extent is if the Nepal government actually implements the budget. If that happens, there will be huge injection of liquidity in the market because the government is the largest spender in our economy. Otherwise, we will definitely have a problem. But being an optimist, I believe the economy will pick up.

What about the market risks, like the ATM fraud incidents that recently made the headlines?

There are always market risks. In fact, there are all sorts of risks, especially in a country like Nepal. But a majority of banking sector today is run by Nepali people, who understand these risks. Incidences of ATM fraud can happen anywhere in the world. What is unique to Nepal, however, is that we were able to identify, locate and actually apprehend the people committing the fraud while they were in the process of committing the crime. That means the checks and balances and the security system we have in place are working. We definitely have to do better like maybe put anti-skimming devices in ATMs, or some local interface with SMS. We’re looking at all sorts of options. But at the same time, we don’t want to inconvenience our customers. So, the issue is quite complex. Still, I think we’ve managed to handle various risks fairly well in Nepal. The reason I am saying this is because there are various sectors that have gone from boom to bust, but never have you heard of a bank collapsing because a sector failed. This is because the people running these banks are aware of the risks and know how to mitigate them.

Due to shortage of physical dollars, NRB recently imported bills worth $10 million from Singapore. Aren’t commercial banks also planning to do the same?

Yes, because there is shortage of physical dollars at present since not many people are bringing in hard cash. Most of our foreign earnings come through remittance, which does not come in cash. The second source is tourism. But the tourists no longer visit the country with wads of dollar bills. They use cards for payments. So, maybe we also need to migrate to card culture. Why do we need dollars? To travel abroad, right? Tourists come with a few hundred dollars in their pocket and the rest they pay for using their cards. If they need money, they go to an ATM and draw local currency. I think we need to slowly migrate to that. It will take some time, but I think the way forward for us is to evolve from cash culture to card culture.

How do you see the relationship between NRB and commercial banks?

The central bank, as a regulator, has been able to show us the way and help us walk on that path of transparency, professionalism and good governance. Without NRB, I don’t think the banking sector would be what it is today. As in any relationship, we have our ups and downs, but we will work in strengthening that relationship. The NRB and commercial banks are like two sides of a coin. We need to be in cohesion because if we just keep blaming each other, things move very slowly. So, we’ll work on building those bridges of trust as we move forward.

One of the standoffs is related to the new provisions on deprived sector lending, isn’t it?

Nobody challenges the philosophy that we somehow need to get the capital to the lowest level of the economic pyramid. For this, as per the earlier directives, we were going through indirect channels. Now the regulations have changed, but most institutions don’t have the skill sets in place for it. Two per cent means millions and millions of rupees. We need time to develop the required skills. Plus, the market is not ready to absorb all that money from the banks. So, we just want a little time to do that and maybe should also look at innovative solutions. So, we are trying to see what can be done. As I said, nobody is against the need of deprived sector lending. We are only debating on how to go about it.

What is the outlook for the banking sector in Nepal?

At present, there are 28 commercial banks that are members of the NBA, which have 1,871 branches spread all over the country. The total deposit of banks is around Rs 1.764 trillion, with altogether 13 million deposit clients. Similarly, there are altogether 753,000 loan customers of the banks with the total credit extended amounting to Rs 1.403 trillion. The total paid-up capital of the sector is Rs 123 billion, with 25,000 bankers employed full-time. In addition, the banks paid taxes to the tune of Rs 15.31 billion to the exchequer last year, which I think is the highest for any sector in the country. Looking at the spread of the banking sector, we are in an amazing position. We’re reaching all parts of Nepal and are now able to affect the economic activities of not only cities and towns but villages as well. One of the examples was during the earthquake last year, when the movement of money to the affected districts was possible to a large extent due to the banking channels and the way we utilised the available technology. Through all the political and social upheavals, the one sector that has been able to hold it together has been the financial sector. Therefore, going forward, I think the banking sector is truly the heart of the economy and it is this heart that we have to keep healthy.

But then, there are plenty of challenges as well, don’t you think?

Yes, there are a lot of challenges — with the new constitution, new political structure, the local elections, so on and so forth that is coming up. We just had the whole Tarai incident when the entire economy came to a standstill. But like in our body as long as our heart is strong, we can take on any challenge. The biggest challenge facing the banking sector of Nepal that I see today is manpower. Even today, many young people say their first career choice is banking. But gradually we are finding more and more young graduates — especially the crème de la crème — are looking to go abroad. So, if we are unable to attract quality manpower like how the banking sector has been able to do for the last 30 years, the next 30 years are going to be very, very difficult. The second challenge is political stability. Politicians have to create an environment where the banks can run and facilitate economic growth by helping our customers do whatever business they are doing. The third challenge is due to unhealthy competition. A lot of financial institutions have been established, but economic growth has not kept pace. This has created a situation where there are more mouths to feed but the plate is the same. If we don’t handle this in the medium-term, this will lead to some problems for sure.

So, what are the opportunities that you see?

I think very little has been done in Nepal in any arena. So, there is opportunity in every sector. Banks, like the government, are facilitators that can help set up businesses, help the economy grow. But for that, we need a conducive environment for investment. We now hope, with the constitution in place, with the federal structure coming into place, that we will get more and more traction in the economic sector. If that happens, for the banking sector and for the economy at large, there will be huge growth. And as a Nepali and as an optimist, and now as the president of Nepal Bankers’ Association, I see a lot of opportunities going forward. There are definitely challenging days ahead because I think political stability will take some time. But as we have done for the last 30 to 35 years in this sector, we will move ahead. People keep asking how the banking sector has managed to stay ahead of the curve and I think it is because of the people working in this sector are well educated, highly trained and greatly motivated professionals. That is why the banking sector does so well.