Rabbit is rich
The five-year financial sector reform programme was launched in Nepal four years ago with loans and technical grant, the former constituting the major part of the package, from multilateral financial institutions, particularly the World Bank and the IMF. The programme is aimed at reforms in the Nepal Rastra Bank, as well as at turning the sick banks around — the Nepal Bank Ltd. (NBL) and the Rastriya Banijya Bank (RBB). Armed with a budget of seven billion rupees, two foreign firms took over the management of the ailing NBL and RBB, which respectively have the state’s partial and full equity participation. The foreign managers say they have considerably improved the banks’ financial health and cite various indicators like operating profit, financial ratios, the reduction in non-performing assets, and even progress on loan recovery, in their support. Bruce F Henderson, the RBB’s chief executive officer, has said within two years the bank will be ready for privatisation, the ultimate goal of the reform agenda.
Their claims contain a large element of truth. But the financial cost of putting back in order what the Nepalis have messed up is equally large. Even then there has been little success in making the big loan defaulters pay up. This demonstrates the influence of big defaulters, four dozens of whom together owe well over Rs.25 billion to the banking system, mostly to these two banks. Successive governments’ commitment in recent years to crack down on them with measures such as impounding of their passports and social boycott remains limited merely to words. Government leaders have yet to display seriousness in recovering the loans, and the judiciary has been generally seen to be rather unhelpful. The Supreme Court’s controversial recent decision on the Mahalaxmi Sugar Mills’ loan default case that led to calls for impeaching the judges concerned is a case in point.
Finance minister Dr Ram Sharan Mahat on Wednesday reiterated the need to restructure big loans. Politicians like Dr Mahat still talk in terms of rescheduling loans overdue for years, not of recovering them, thus strengthening the public impression that the unholy alliance between businessmen and those in power is stronger than admitted. Anybody who takes bank loans does so on condition that he or she will repay them with interest within a stipulated time, irrespective of profit or loss in business. Rescheduling should take place only in the few genuine cases where despite the best of intentions debtors are not in a position to pay on time. Furthermore, the huge money spent on the financial reforms constitutes an additional burden of foreign debt on the Nepalis’ heads. The need to draft expensive foreign management is tantamount to saying that our politicians and bureaucrats are simply incapable, to say the very least. Dr Mahat and other government leaders who talk big on financial discipline, corruption, etc. now have tthe opportunity to establish their sincerity by making the big debtors, who have robbed the depositors and shareholders of their hard-earned money, to cough up. Period.