Need To Dispel Anti-banking Sentiments

The banking sector is one of the pillars of the economy of Nepal. It is the banking sector that boosts the economy through investments in agriculture, business enterprises, industry, hydropower, infrastructure development and other relevant sectors. The contributions of the banking sector to the overall economy of the country cannot be over-exaggerated. However, in recent years, the way the public views the banking sector has been negative. People think that bankers are frauds. Their views are based on the way the banks increase interest on loans. In the past, there was a practice of charging floating interest on loans. Such a rate was based on market dynamics. In fact, under such a system, interest on deposits and loans could go up or down as per demand and supply. 

Now, the rates of interest on loans are charged a certain percentage point above the base rate. The base rate is calculated every month. And the rates of interest on both deposits and loans may change every month. The base rates of different banks may differ and so the rates of interest may also differ from bank to bank. The banks run as per the norms and regulations of the Nepal Rastra Bank (NRB) as well as international banking norms and practices. So they are considered one of the most transparent, if not the most transparent, institutions in Nepal. The books of account of the banks are audited by internal audit departments and statutory auditors. The NRB also inspects their operations. So the banks are monitored by three layers of supervision. These are positive gestures that have made the banks viable and robust institutions in the country. 

Public outrage 

Nevertheless, there is public outrage against the banks and other financial institutions such as microfinance institutions. Durga Prasai, a medical businessman, has been stoking negative feelings towards the banks since last year. Last year, he said that he would not repay his loans unless the rate of interest came down to six per cent. He also demanded that all loans below Rs, two million be waived by the banks. 

Prasai also bruited it abroad that NIC Asia Bank is collapsing soon. Perhaps owing to such a rumour, around Rs, 27 billion has been withdrawn from the bank. The bank has issued a statement that the withdrawals will not have a major impact on it. Even the NRB Bank has issued a statement, reassuring the deposit-holders that their deposits are safe and that the bank is not going to collapse. In fact, no bank is going to collapse in the country. As the lender of last resort, the NRB will come to the rescue of any bank should it be about to collapse. 

In fact, the banks are strong and resilient in the country. They have easily survived the 2015 earthquake and the subsequent embargo imposed by India on the country following the promulgation of the federal constitution. They were not as affected as other businesses when the COVID pandemic hit the country in 2021 and 2022. Most businesses, including tourism and hospitality sectors, collapsed, but the banking sector was still able to earn profits. 

As in any other sector, the banking sector is not immune from fraudulent activities. Some bank staff have committed banking offences. They have also been penalised. The offences range from the embezzlement of depositors’ money to lending irregularities. Recently, ripples have emerged across the banking sector when some bankers were arrested by the Central Investigation Bureau (CIB) of Nepal Police in connection with the disbursement by the erstwhile Century Bank of loans of over Rs. two billion on inadequate or overvalued collateral. At a time when public trust in the banking sector is dwindling, this incident has apparently reinforced the popular belief that bankers resort to unethical practices for their self-interests.

The Nepal Bankers’ Association (NBA) has vehemently protested against the arrest of the bankers. The association has also said that the CIB has no knowledge of banking. It may be noted that business loans are disbursed not only on the collateral of land and buildings but also on that of stocks, accounts receivable and the like. As the investigations are going on, whether the bankers who are now in judicial custody have committed irregularities or not will come out in the open soon. 

There are also some instances of attacks on bank employees. Last year, the branch manager and an executive assistant of the Myagdi branch of NIC Asia Bank were thrashed by a group of people. This time around, the arrest of the senior bankers has aroused a feeling of insecurity on the entire banking community. The banking community has felt that bankers have to work in an insecure environment. 

Contributions 

No country can develop without the banking sector. The banking sector has given job opportunities to a large number of people in the country. At the same time, the banking sector has made it possible to undertake big development projects for infrastructure development. Considering the contributions of the banking sector to the overall economy, it should be viewed in a positive light. But unfortunately, this is not happening right now. Some have alleged that the banks are as good as loan sharks, which is too much. The banks do not give loans at usurious rates of interest. 

It is high time the banking community dispelled anti-banking feelings entrenched in the public. For this, banking awareness and literacy campaigns need to be embarked upon across the country. The public should be made aware of how banking operations run and what lending procedures are so that misconceptions about banking are dispelled. 

(Maharjan has been regularly writing on contemporary issues for this daily since 2000.)