June 20: At a time when Nepal Rastra Bank is encouraging commercial banks to merge, Pawan Kumar Golyan, chairman of the Confederation of Banks and Financial Institutions Nepal (CBFIN), shared that the number of commercial banks should not be reduced below 20.

In an interview with New Business Age, he said that a certain number of banks is needed for the effectiveness of the services provided to the public.

"From the point of view of customer service, the number of commercial banks in Nepal should not be less than 20, excluding Agriculture Development Bank, SBI and Standard Chartered," Golyan said.

He claimed that the facilities available to the service seekers could be affected if the number is reduced.

In the second half of June, NRB Governor Maha Prasad Adhikari called the directors of banks and financial institutions urging them to undergo merger within the current fiscal year as NRB would not facilitate them from the next fiscal year. Since then, four banks have entered into merger agreements.

A study of Nepal Rastra Bank shows that the number of commercial banks would drop to 15. Stating that there is a tendency to reduce the number now and issue licenses later, Golyan stressed that the number of banks should be fixed to protect the interest of the customers. Golyan, who is also the chairman of NMB Bank, said the bank did not have a merger plan but was planning to bring in an Indian bank as its partner. He also informed that NMB Bank is preparing to bring a loan of Rs 30 billion.

He said that due to lack of liquidity, it would not be possible for the banks to get loans from a foreign institute as the due diligence audit (DDA) process for borrowing from foreign institutions would be cumbersome and lengthy.

Although the banking sector is the backbone of the economy, Golyan complains that it has received a lot of criticism instead of praise. He said that the people of the villages have deposited Rs 490 billion in the banking channel and invested in the productive sector.

He complained that the stakeholders were focused on the wrongdoings and the policy has been made in such a way that it would embarrass everyone when a bank did something wrong. 

"Right now, the bank's return on investment (ROI) is around 10 per cent. In three years, it could drop to 6 per cent," Golyan said.

Golyan said that it is common in Nepal for bad loans to be less when collateral-based loans are more. He estimates that bad debts may increase in the coming days.

Stating that the banking industry is the backbone of the economy, Golyan said that CBFIN was set up to conduct necessary studies and conduct policy discussions to manage the banking sector as per the needs of the country. He said that the situation of banks and financial institutions, remittances and other issues have been studied by CBFIN and some of the suggestions given on that basis have been implemented.

Golyan said the government has implemented CBFIN's suggestion to allocate a 10 per cent quota on primary shares to the families of remittance senders to increase remittances in Nepal. He said that it was necessary to open a bank account and provide training on financial literacy before going abroad to send back remittances.