The sacking of Dr Tilak Rawal as governor of Nepal Rastra Bank finally put to rest the differences between him and Finance Minister Mahesh Acharya. The new appointee, Dipendra Purush Dhakal, 48, is a former government secretary, and he takes charge of the central bank at a time when urgent reforms are needed in the financial sector. Excerpts from a short conversation with the new governor follow:
How do you feel about your new appointment?
This sector is not really new to me because I have had some association with it earlier through the joint venture banks. In fact I have served four or five years as director in those banks. I am aware of policy and major problems faced by this sector. I was also appointed to the board of the Nepal Rastra Bank itself. But you skipped as many as five consecutive meetings, and by NRB rules you should have been removed from the board.
The reason is I am now mourning my father's death. There are a lot of rituals one has to perform every month. At the same time I was also working full-time as Managing Director of Kathmandu Medical College. Because of this, I missed some meetings. I don't know exactly how many though.
You join NRB at a time when the finance sector is in a very bad shape. How do you plan to tackle this?
Yes, the financial sector is going through a very difficult phase. People are slowly losing confidence. Depositors are getting scared about the safety of their deposits. The amount of bad debts that have been projected is another reason for worry. The operations of many banks are also being questioned. The central bank will intervene when needed to resolve these issues. I have also heard that operations of some financial institutions are very troublesome. If poor
monitoring and supervision leads to any of the institutions becoming bankrupt it will not only damage that particular organisation but also the people who have saved there or taken loans will be jeopardised. One dying institution can cause an upheaval in the economy.
Where do you stand on the issue of autonomy for the central bank?
The autonomy debate has been going on in the financial sector and there have also been discussions in international forums. Central banks are autonomous in many countries, in others they are not. We are also discussing what would be the most appropriate for Nepal Rastra Bank. I would rather like to assess the issue very seriously and only after making my observations will I make recommendations.
Do you have any comment on the present economic situation?
It is not very bad. It is a little different than what has been projected. Economic growth is in the range of six percent, which is good. Inflation is at 3.3 percent, which is good for a country that has at most times experienced a double-digit inflation. Similarly, government borrowing was not very high last year. These are positive indicators. There are some negative indicators also, such as revenue collection in the early months.
It needs vigilance. What about banking, interest rates?
The market determines interest rates. If savings are not up to desired levels interest rates could go up. This keeps on fluctuating. We used to get up to nine percent interest on savings and up to 13 percent in fixed deposits. You don't get that anymore. Again it is related with the overall economic situation because we are not a closed economy anymore.
Is that not a core area the central bank has to look into?
Very true. The major responsibility of the central bank is to manage money supply. You adjust money supply to adjust inflation. You also fix certain bank rates, which indirectly influence the interest rates of commercial banks. The core is
money supply and we have to look into that.
Are you related to the Koiralas of Biratnagar?
Some papers say your new appointment came because you are related. I am not related to that family. I am from Dhading. My grandfather came to Kathmandu and we settled here. I have two brothers and four sisters. None of my sisters is married to a Koirala. My younger brother is married to a Koirala, but to one from Pokhara.
