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NB Bank's
Reform Agenda
Responding to a streak of ill performances in the last one year or so, the NB Bank board appointed new CEO mid-April. What changes has this initiated?
When Nepal Bangladesh Bank Ltd. (NBBL) published its unaudited financial report for the fiscal year that ended in mid-July 2004, it reported about 9 percent increase in its operating profit over the year and that was the lowest growth across all the 17 commercial banks. When the bank published its operating results for the third quarter (ended mid-April 2005) of the current fiscal year, the situation was even worse. Compared to the same period in 2003-04, the third quarter operating profit of the company in the current year was reduced by 18 percent, while all the other 16 banks reported a positive growth in their operating profit.
That was perhaps one of the major reasons that prompted the bank’s board of directors to go for the CEO change early April. The new CEO, Shovan Dev Pant, informs that the most important change since he took over has been in the corporate governance. “As poor corporate governance is the root of all the problems in institutions everywhere, the change brought about recently in the outlook of the Board of Directors of NB Bank is going to make a big difference in the bank’s future and some positive results have already showed up ,” he says.
As Pant revealed, the bank was able to recover Rs. 450 million out of the non-performing assets and non-banking assets over the two months since mid-April and he claims that it is due to efficiency improvement brought about through the improved corporate governance.
Meanwhile, the bank launched two products during the period – Grihini Bachat Yojana and Saving Plus. The deposit mobilisation under the first scheme with housewives as the target group has been around Rs. 10 million per day, he claims. The 4.75 percent rate of interest offered on this scheme seems to be the main attraction as most of the other banks are usually providing an interest of only around 2 percent on deposits.
Pant says that the problems in the NB Bank are more than what they seemed to be from the outside. Being specific, he adds that the bank needs to make a great leap on human resource quality, operational control and enhancement of credit culture. Now that the Board of Directors of the bank has already made a decision to strengthen corporate governance by managing the company professionally and honouring all the directives of the central bank, the management is moving ahead with programmes to bring about improvement in all these fields.
One of the strengths of NBBL is in financing the hydropower sector and it has been appointed the administrator of the 35 million dollar Power Development Fund (PDF) set up by the World Bank. Some formalities still pending for operation of this fund are expected to be finalised within a month. “After that we’ll start sanctioning funds for hydropower projects,” says Pant.
The other important strength of the bank is in export financing. “While other banks are shying away from this sector, we are trying to find out how the risks can be mitigated so that our funding can be increased in this sector,” he adds.
Another new development in the bank post mid-April is that its marketing communication started focusing on corporate advertisement as well (in addition to product ads) and highlighting the unique identity of this bank. A marketing team has been set up in the head office under the leadership of the Assistant GM and there are marketing cells set up in every branch. As marketing communication in most of the other banks is still being handled by the board secretariat or the secretary to the CEO or the like and not by a marketing department staffed by marketing professionals, this new effort by NBBL can be expected to be a trend-setter provided that it is really able to make some visible difference.
With staff strength of 400, there seems to be a problem of over-staffing in NBBL. So, Pant is planning to resize it and has identified that 25 percent of the positions are redundant. About 5 percent of them have been made redundant through various mechanisms. “For example, many employees who were working under contract have been removed. Similarly, positions for jobs which could be outsourced, have been removed. This saves us about Rs. 10-15 lakhs per month,” says Pant adding, “We may look for VRS as well in the second phase.”
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Though other banks are going on opening new branches and NBBL too was doing so till recently, it is not opening more branches for some time, informs Pant. “First consolidation, then only expansion,” he says. “First we have to ensure that there are enough trained employees to handle the new branches. Some banks are facing problems with their branch operations because they went in for expansion without ensuring human resource availability. We’re not going to repeat the same mistake.”
One important problem with NBBL is its over-exposure in the garment sector. What is Pant doing about it? “Not abandoning the customers right now,” he replies and adds, “We are trying to help them out if there is scope. It is, however, too early to say anything about any individual client. I know there are a number of our customers who are doing fine even today. And if your family member is sick you don’t rush him to the Aryaghat for the funeral, you first rush him to a doctor.”
Now Pant is exploring ways to use the opportunity available with a robust Rs.12 billion deposit base. Though the amount is not so big compared to a number of big banks, it is not small either. More importantly, this amount is collected not from a couple of big institutions, but from a large number of individual depositors and this broad based critical mass can be used to sell new innovative banking products. “Hydropower is big in our portfolio and it applies to trade finance too. But we have not gone very high on home loan and we are not going to compete in the current race of cutting down on interest rate. We will be more creative and would like to go bigger in export finance, hydro sector, and capital creation in the economy. We want to have a unique positioning in terms of the type of our investment and in terms of the interest rate we offer,” he summaries his strategy.
Dugar Iron & Steel Trading Co.
Unique in
so Many Respects
Dugar Iron & Steel Trading Company is unique in several respects. Besides being one of the rare trading firms entirely owned by an Indian national formally, it sells products that are made in Nepal if available. If such products are not available and it has to import them, it imports them from India alone. Contrary to the common practice across the trading community to avoid VAT or other taxes, this firm issues invoice for every sale showing the actual price charged to the customer in the invoice. It gives the consumers a warranty on the products sold by it for a period longer than what the manufacturer has specified. Yet more interesting may be the fact that it does not give any commission to the parties (in this case, the architects, engineers, the plumbers etc.) that influence the purchasing decisions of the end consumers.
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“Anyone can check on these facts the way he or she likes,” is the challenge of Prakash Dugar, the MD of the company, who came to Kathmandu penniless some 25 years ago, worked for a couple of years in a friend’s shop as a salesman to earn his living and then started his own business without, as he claims, investing any money from his own pocket.
Now his firm makes an annual turnover of some Rs. 300 million and he is happy with his business. His only complaint is that he could not receive Nepali citizenship despite living here for so long and paying so much taxes to the government, while, according to him, most of the estimated 25,000 Indian nationals like him living in Nepal have already got the citizenship by questionable methods. Though he does not reveal the exact amount of taxes paid by him per year, he claims that his firm is one of the largest taxpayers in the country.
If one goes round the main showroom of the company in Kathmandu, one can see Nepal made products like Hulas GI pipes and Panchakanya plastic pipes on display. “We sell only Nepal made items if available in a particular category. If there are no Nepali products in a category, we then import,” he explains. But why do they import only from India?
There are two reasons, according to him. First, as replacement parts are easily available for the Indian goods, it is easy to provide after-sales services on such goods while this is not the case with the goods imported from third countries. “People, who installed sanitary wares imported from third countries are now replacing them with Indian products for this reason,” he informs.
Secondly, and more importantly, his firm is allowed to import only from India because he, as its owner, has no Nepali citizenship and the authorities, in those days when his firm was registered, perhaps did not like to make his firm eligible to receive foreign exchange. “This is ridiculous,” he comments, adding, “So many other Indians have already acquired Nepali citizenship by dishonest means. I don’t get even a telephone connection unless I provide a guarantee from one of my Nepali employees. In the beginning, they did not even allow me to open a bank account.”
Due to the lack of citizenship certificate, he has not been able to get bank loans for his business. “I could not get a loan even from the subsidiaries of Indian banks. They all want land or building as collateral security for the loan, but I have no such property because I can’t acquire such property as I’m an Indian citizen.”
Even the chambers are not accepting his firm as their member, for the same reason – i.e. lack of his citizenship certificate.
But this has not obstructed his business expansion. Recently the firm opened a showroom at Naryangarh which is the third outlet of the firm another one being in Pokhara.
He is now thinking of opening a department store-like outlet somewhere along the Ring Road where all the construction materials including sand, stone, bricks, paints, furniture, curtains etc. would be available under a single roof.
Why is he still in Nepal despite such complaints of discrimination? “Because I’m a Hindu and I love and respect the King and support every step the King makes.” He says he prints about 25,000 calendars every year with the photos of the King and the Royal Family and distributes them for free.
Though dealing in construction material (sanitary fittings), Dugar’s firm is not benefiting from the growth in the housing business. “In fact, it has harmed our business,” he says. “This reduced the number of new individual houses while the housing companies, except a few, are using sub-standard material. They are not so careful about the quality. Some of them are importing directly. Maybe they are learning. So till this industry becomes mature and realises the importance of quality material, I can’t expect to have significant sales in this group,” he adds.
However, he is happy that the people are gradually becoming more quality conscious. “Making a house is a lifetime achievement for a Nepali and they want to use quality goods in their dream houses.”
Dugar Iron & Steel employs 60 staff including seven persons in marketing and 16 salesmen. The marketing people are not required to observe any office hours and they go from door to door promoting and selling the brands that the company deals in. It is using about two dozen sub-dealers throughout the country in the major towns.
But what is more important perhaps is the warranty given by the firm. While the company that owns the brand would be offering five or seven years of warranty on the product, Dugar Iron & Steel is providing free after-sales services for an unlimited period, not only in Kathmandu, but throughout Nepal.
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Prakash Dugar, MD, Dugar Iron & Steel Trading Co. |
As any other business, Dugar Iron & Steel too is suffering the problem of realising the dues from the credit sales, particularly in the recent years due to the worsening economic situation of the country. However, Dugar says that he is not complaining though it hurts. A lot of money is to be received from the government and also the hotels. “In fact it is a chain effect, everybody has arrears to collect and we too are not getting the money collected. But I think we should try to understand the situation and help the others, if we can, by waiting a little bit longer.”
Does not he have any complaint with the tax office? “No”, is the reply, because, as he says, all his accounts are clean. But he suggests a reduction on the import duty on sanitary wares. “High import duty is encouraging smuggling,” he says and points out that it was one of the other reasons that he is dealing only in high quality brands and bringing them directly from the factory of the manufacturers. This way there would be no parallel importer. Moreover, this way he can import under the AR-1 form which entitles Nepal for excise refund and due to which Nepal customs provide rebate on the import duty.
Another complaint he has about the customs is the lack of uniformity in the valuation system across the different customs points.
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