Nepal Rastra Bank ( NRB ) Governor Yuva Raj Khatiwada on Thursday advised bank directors "either to become a banker or a businessman", saying their dual role has been "self-contradictory".


First the directors complain about liquidity crunch and say interest rates cannot be slashed, but the same directors, presenting themselves as businessmen the next day, complain about higher interest rates, the governor said. "It is not necessary for a businessman to become a banker. It is better they part ways," he suggested while addressing the "National Directors Conference" organised by National Banking Training Institute.


Traditionally, proprietors of business houses hold crucial positions like chairman and board members in banks and financial institutions (BFIs) they have promoted. Against this backdrop, the governor said it is not necessary that the one putting in money should hold positions on the board. He suggested appointment of professional and capable persons on the board so as to maximise profits.

 

Indicating most of the bank directors lack adequate banking knowledge, Khatiwada said many promoters have an illusion that they are the "masters of their banks". "You must get out of the illusion that the company is yours," he told the directors. "Promoters have the mindset that why they can't get loans from banks they have promoted."

 

The governor suggested bankers to study the existing laws which clearly define the roles and responsibilities of the board and the management. The Bank and Financial Institution Act has barred board members and promoters having more than 1 percent stake in a particular BFI from taking loans from the same BFI. He asked the bankers to understand that banks are not only their possessions, but also of employees and the society at large.
The governor flayed bank directors' tendency to 'lobby' for allowing them to sanction loans to a certain interest group even if the loan seekers are not eligible. He also hit out at promoters working as employees. "The practice of taking two benefits — bonus as an employee and dividend as an investor — must end," Khatiwada said.

 

Governor Khatiwada stressed on check-and-balance between the board and the management. "The situation of board members complaining about the CEO and the CEO complaining about the board must end,' he said. Asking bank directors not only to focus on making profits, the governor said: "Banking is not a business in which profit can be magnified within a short period, but by offering good services to customers."

 

He requested BFIs to maintain strong internal control mechanism to minimise operational risks. Risks at operational levels have emerged as a big challenge in the banking sector. This is evident with recent incidents of unauthorised withdrawals from ATMs in collusion of bank staff.

 

Deputy Governor Mahaprasad Adhikari said BFI boards should not intervene much in day-to-day operation. "The best corporate practice can help increase the management's efficiency without making any intervention in their daily functioning," he said.
Adhikari added the board should hand over the job of devising strategic plans to the management and only take up the job of forming guidelines and giving necessary approvals to plans presented by the management.

source: ekantipur

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