DEC 01 - It has been five months since AK Ahluwalia was appointed chief executive officer of Everest Bank Limited.

Ahluwalia, who has a 32-year banking experience, has expertise in credit and recovery. The Kathmandu Post talked to Ahluwalia about his experience in Nepal, the domestic banking industry and Everest Bank's plans: Excerpts:

How have these five months been for you as the CEO of Everest Bank and what is your assessment of the Nepali banking system?

Out of the five months, I got to work only for the first three months in terms of banking as the latter two months had particularly nothing to do with banking due to events like Dashain holidays, elections and results. As far as the banking here is concerned, it is a bit different compared to other countries where I was exposed to.

It is because the Nepali economy is dependent on remittance and trading activities, which is unlike most of the countries where industrial output and manufacturing are also very important. Banking here is done based on these realities.

In the first quarter, Everest was among a few banks that recorded profit growth, while many big banks witnessed decline. Does this indicate that profits would not be impressive at the end of the fiscal year?

There are a couple of things that happened this quarter. The US dollar was going very high compared to the Indian rupee. The Nepali rupee being pegged to the Indian rupee, the conversion rate was high and whatever remittances were coming in, basically when converted to Nepali rupee, became bigger. So liquidity in banks remained high.

On the other hand, the election was approaching. When such a big event happens, anybody wanting to start a venture waits until that happen. That's why credit didn't expand to the level that it should have been. Anyway, I personally feel the first quarter is always a dull quarter. Only the problem is it continued to the second quarter, which is not an encouraging sign. Now, I think things are in shape and have been stabilised, and the credit will go up.

As banks booked handsome earnings through foreign exchange in the first quarter, don't you think the central bank's restriction on forward contract scope, limiting it to 20 percent of primary capital, will affect profits?

It will definitely affect the banks. And I think the NRB will have to take a view on this in the perspective that it is not a developed economy. Banking here is taking shape right now. So banks do need some support from the central bank too.

Banks and the NRB have different views on base and spread rates. What is your take on this?

The NRB's concern on spread rate is natural as there is the interest of depositors to be served. But at the same time you also need to see things in proper perspective. Banks can only lend 80 percent of the fund they have gathered, so 20 percent is practically not invested anywhere. Even if banks invest in the reverse-repo or in government securities, the return is so low. That factor needs to be calculated while we are talking about the spread rate.

Secondly, in a developing economy, banks should be encouraged to open new bra-nches, where there may not be profitability in the beginning. This factor also needs to be taken care of while calculating such things.

Political parties that are considered pro-market have won more seats in this election. How hopeful are you as a banker?

I am very hopeful, and the business has to pick up. There is no other option available with the level of liquidity we have. The people, I know, have been waiting for stability and the liquidity will be absorbed through credits, not only through reverse repo.

Otherwise, the impact is going to be very bad. Since there is so much liquidity in the market, it spurs more demand. So it is in the interest of the country that new projects should come. The new government too should support them with better infrastructure and incentives. Otherwise, there will be much inflation with the high liquidity in the market.

Which are the sectors that will help the banks' growth?

As far as banks are concerned, practically, ever since I have come, it is the trading sector which is growing. And it's a cycle. The dollar is coming in and it is simply being consumed importing other items. Nepal is basically a consumption-based economy. I also feel some manufacturing activities in different districts will help if they are given incentives. Steel, packaging, food industry, handicrafts and carpets are the industries that may really come up, if necessary support is provided.

Also, in context of Nepal, hydropower is a very big industry.

Everest bank is among a few banks that have invested in the hydropower sector. What is the total exposure of the bank in this sector?

We are doing investment in a number of projects. I won't say that our bank is the number one when it comes to investment in the hydropower sector. Everest bank is a bit conservative bank and we are cautious in investing. But yes, many good projects have come up with demands for financing. While financing hydro projects, we do take into the account the past conduct of the key persons and the promoters, and also the output they expect from the project. We also look into whether a project is really feasible.

What's your assessment of Nepal's Small and Medium Enterprises (SME) sector and how good the SMEs are to invest in?

SMEs have got a good future. Whenever I talk about incentives, SME is one such sector which has to get them. Generally in SMEs, promoters don't have much capital and whatever security they provide might not be able to totally satisfy the banks. In this context, both the banks and the government have important role to play to develop this sector. The government should set up some training centres to encourage people to involve in SMEs. On the other hand, the banks will also need to come in the picture to support financially. That's why SMEs will grow throughout the country. In India, I have seen a lot of SME entrepreneurs who are technically good but have failed to manage properly. So I think both these aspects should be managed properly.

Everest Bank is a pioneer in branchless banking service. How is it doing?

It is really picking up. We have it in more than 50 districts. We are in the process of appointing business correspondents. We have already appointed some.

Branchless banking is also feasible financially. Those working with us as correspondents need to have certain requirements like computer, printer, scanner, etc. To those not having it, we are providing it just to make it popular. And I think within the next three to four months, things should really pick up. And once it picks up, we have our network spread all over the country.

Everest Bank is also keen on investing in the agriculture sector. Tell us about the bank's exposure in this sector?


In Rajbiraj, we have a branch primarily financing the agriculture sector and it's doing very good. In Biratnagar, we have tied up with certain corporate sectors and cooperatives. This is the first year of experience. I believe the second year will be better. Once the return starts coming, I think we will be expanding also and we will be taking it to other branches as well. In fact, we have been talking with the Federation of Nepalese Chamber of Commerce (FNCCI) as it also has certain plans to develop certain districts for agriculture and handicraft.

A lot of merger stories have come about Everest. What is the plan? Will it go for a merger?

As of now, we don't have any plans. Nothing is in the offing. You never know if there comes a policy from the NRB where you have to do that. Everest bank is a strong bank. We do not have any issues over our portfolio, which may force us to go for mergers. People have belief in us and we have a good workforce. So I don't think we have any reasons to go for a merger. May be tomorrow if the government or the NRB take certain policy forcing us to go for merger, the bank management will take its call.

As a seasoned banker, how do you review the banking sector of Nepal and how should it move forward?


There is an established system in Nepal. Most of the banks here are new ones, which is a good thing, and which is not there in most of the countries where banks are already fully mechanised. The information technology has already helped the banks put the system in place. What is more important now is the decision making part.

Ultimately, it is a decision about how you are going to handle a particular portfolio. So I feel all banks are doing good job out here and they need to take care of their portfolio is all I can say.

What will Everest's new initiatives for the current fiscal year?

There are a lot of initiatives. We will be having a lot of credit schemes. We will be having deposit portfolio also. We are trying new schemes. It will take four-six months to put them in place. There will also be some innovative schemes.

Source:ekantipur

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