The Nepal Rastra Bank (NRB) has invited financial and technical proposals from Nepali individuals, firms and companies interested in running the Nepal Bank Ltd. (NBL), the country’s oldest commercial bank, under a two-year management contract. The NBL, with the state’s major equity, had been managed for five years by a foreign firm till it walked out six months ago following the government’s decision to renew its contract just for another three months. As part of the financial sector reform that had been set in motion in 2002 with World Bank loans totalling some nine billion rupees, the NBL and the fully state-owned RBB were to be managed by foreign firms, with the objective of making them ready for privatisation in three years. It indeed looks strange that to clean up the mess the government and the central bank had created over the years because of their failure to do their duty of monitoring, supervising those banks and of correcting the wrong ways in time, they have been spending billions of borrowed money. The question that will continue to be asked for quite some time is, whether the same job could not have been done with much less expense.

At present, the central bank is holding these two banks in trust. If the NRB has to award the contract of managing the NBL to some outside party, even though a Nepali one, one wonders whether the NBL’s private shareholders could not do the job on their own. Moreover, how long are the government and the central bank to wait before selling the state’s stakes in the NBL, as well as in the RBB, to individual investors? When the time comes for such transfer, the temptation for those in authority is likely to be again to strike a deal with some big business house, instead of floating all or most of the shares in public, because in the latter case there would be no chance of making any shady deal. Charges of wrongdoing had dogged the sell-off of several public enterprises in the past. What is it that stands in the way of making a beginning by floating equity shares of the NBL in public at a time when the public’s demand for shares to buy is far in excess of their supply?

These two banks were singled out for special attention because a financial sector reform programme has been in place with foreign assistance. There is no doubt that most other PEs, and most other state agencies, would qualify as ideal candidates for such targeting if reforms in them were to be introduced too. If a similar path of foreign-aided reform were chosen to improve them too, the cost would be staggeringly huge. The Nepalis, particularly the government, should learn to do things on their own. It is the easy, and often the costlier way, to get rid of a problem by entrusting it to others, especially to foreigners. Those who have been in charge of these banks since the financial sector reform commenced have tended to talk highly of their achievements. Whether or to what extent these claims are true needs to be analysed more independently and more thoroughly. The ultimate test of the current reform lies in how soon the process of transferring ownership to the public is started and completed.