Rich dad, poor dad

The parliamentary Committee on Finance is to question Finance Minister Dr Ram Sharan Mahat today over the government’s failure to recover money from at least 30 defaulters who had borrowed heavily from the Rastriya Banijya Bank (RBB) and the Nepal Bank Ltd. (NBL), the two public sector banks. Several years ago, the financial state of the two banks had reached alarming proportions — they faced insolvency. This led to World Bank loans and, at its prodding, to the handover of the management of these banks to foreigners under the financial sector reform programme. But the chronic problem of bad loans remains. Successive governments, including the present one, have pledged to take stern action against the defaulters, including the impounding of their passports and social boycott, to make them cough up. But nothing has come of it. Nor have the officials responsible for recommending and sanctioning these loans been booked.

This has raised public doubts about the government’s intentions, about the central bank’s ineffective role, and whether the banks’ managements have done enough to recover the money. In the past, unscrupulous businesspeople, in collusion with corrupt bank officials, government bureaucrats and politicians, had bled the banks white, the collateral they had kept having turned out to be much too inadequate. The list of such ‘blacklisted’ defaulters has been made public from time to time, but little beyond that. On Tuesday, the Nepal Rastra Bank disclosed the names of 53 such groups who had taken a total of Rs. 25 billion in loans from the two banks. According to governor Bijaya Nath Bhattarai, a capital worth Rs.30 billion needs to be pumped into these banks to raise their capital funds to the level of NRB requirement. Three private banks, too, are reported to be going the way of RBB and NBL.

NRB has sorely failed, in its supervisory role, to stop years of haemorrhaging of the two banks. Some of the officials who had contributed to the loot, unfortunately, even got rewarded. It is of some cheer that the parliament has shown concern over the loan scams, but the public would appreciate it only if this concern got translated into actual loan recovery. Of late, NRB officials, particularly governor Bhattarai, have been stressing the need for the government to help crack down on the defaulters. As the big defaulters had borrowed not with an intent to repay, only the employment of tough tactics will yield the desired results. In Pakistan, such loans would not have been recovered if the Musharraf government had not threatened to jail those failing to repay within three weeks. The Nepali defaulters have used most of the loan money for other purposes, including stashing it in foreign banks. It is shameful that the government and the banks have not touched the big fish who are still living in style, while small borrowers like poor farmers are hardly ever shown any mercy if they fail to meet the repayment schedules for genuine reasons.