Nepali Times Asian Paints
"Money laundering is happening."

He talked to Nepali Times about the current banking situation in the country and the potential pitfalls of a new umbrella banking Act for financial institutions.

Nepali Times: How is the overall banking scenario?
Ashoke Rana: The banking scenario is very competitive. There have been a lot of changes right now due to the new umbrella Act and the provisional blacklisting six months ago. Capital has become a very important issue. Banks that don't have the required capital size are going to have a difficult time.

So is the umbrella Act good or bad?
It is needed, but there are some areas that we have expressed concerns about, mainly on the board directorships. They have fixed the number of board directors at seven, out of which one has to be nominated by a panel of Nepal Rastra Bank designated experts. As a non-voting member, I think it will create a lot of problems. It is disruptive when people have invested and cannot represent themselves in the board. The act also fixes qualifications for directors, two-thirds must be graduates in certain fields. Our question is why only commerce graduates or a chartered accountants? Why can't a mathematician be on the board? The draft act is not well-thought in these cases. They have given all the rights of the commercial banks to development banks, but not vice-versa. To be a CEO of a commercial bank, you have to have a post-graduate degree but to be CEO of a development bank you just have to be a university graduate.

Has liquidity dropped because of loan schemes?
A lot of banks have launched retail loan schemes like home loans, car loans. There has been a surge in economic activities and the consumer side is booming even though industries are suffering in the current security situation. But banks still have liquidity. Deposits have lately gone up by 13 percent.

Is the entry of foreign banks a threat?
They are welcome. I think there will be healthy competition because they will be well-regulated. They will have strict credit norms and it will also bring expertise into the market. May be we will also have new areas of banking.

You bid for administering the World Bank's Power Development Fund. How was that handled?
We had put together a very sound technical bid, but we later found that the bidding was focused on financial matters. If we knew that was happening, we would have bid slightly differently. Maybe we would not have taken high-cost partners from the US, Germany and New Zealand. We found out through the papers that a certain bank had become the PDF administrator and we were not informed.

In case of a re-bidding, would you take part?
Yes, I think we would.

Most new banks are based in Kathmandu Valley? How come?
That is something you will have to ask Nepal Rastra Bank. Why were so many licenses issued? During the 12 years of the multiparty system, politicians could not help being influenced while issuing licenses. The central bank has made stricter requirements of between Rs 500 million to Rs 1 billion of paid up capital for new banks, still people are trying to come in. Some are trying to be regional banks to get in.

Criminal transactions in the banking sector are said to be on rise.
Apart from a few cases of forged signatures in cheques, we are now looking at money laundering. Banks now have to follow the 'KYC' (Know Your Customer) policy. If we want to deal with foreign banks abroad, we will have to furnish our KYC policy and different anti-money laundering policies. Because of the Nepal Rastra Bank's strict foreign currency guidelines we have been following, we are not a target of foreign money laundering, but we can be susceptible to money laundering inside the country.

Is it happening?
I think it is. We have noticed some accounts having large movements of cash to different parts of the country. In such cases, we ask them to close the accounts.

What kind of money laundering is this?
Any amount of money acquired through illegal means and on which taxes have not been paid.

(11 JAN 2013 - 17 JAN 2013)