Having just read the about the visit to India of the Nepali prime minister on page 5 of the Calcutta papers, the Beed thought it best, for reasons of national pride and self-confidence, not to delve into matters relating to the relations between our two countries, but discuss more pertinent issues at home.

We all know this by now: the French banking company Cr?dit Agricole wants to pull out of Nepal Indosuez Bank. That decision was left to the court and power politics, but though a ruling has been passed that is supposed to allow Cr?dit Agricole to exit, we all know about the slips between the cup and the lip. No doubt the French firm will not rest in peace until it sees the money-in France.The Nepal Rastra Bank has also ensured that the directors of Nepal Bank Limited quit for reasons known to all, asked the chairman of a private bank to step down, and dissolved the board of the Lumbini Bank. The consultants who are to take over management of the Rastriya Banijya Bank are just waiting for the right moment to arrive. Meanwhile the Agriculture Development Bank has problems, as do rural banks. It seems as if other than a certain other pressing problem, banking is also set to be staple news hounds can rely on.

The first spate of reforms resulted in a mushrooming of banks and financial institutions, but set out no adequate legislative and regulative framework for them to work within. One may argue that the financial sector is difficult to regulate even in developed nations, but consider this in the Nepali context. We allowed banks to be opened by people already in business and, what's more, allowed individuals and promoter groups to be involved in more than one bank at any time. With lax norms regarding ownership, management and governance, banks became a business that thrived on conflict of interest.

Regarding collateral as the only means of securitisation, banks treated the problems of cash-flow and business strength as secondary. Project finance is still a distant reality, and funding in a venture capital mode, impossible. Banks have targeted the limited business of funding against mortgages. But with development banks, finance companies and finance co-operatives also vying for that pie, everyone's slice is getting smaller. Competition is increasing, but its only effect is that margins are shrinking, putting pressure on the bottom line.

The other matter plaguing the banking sector is the issue of non-performing assets-the value of company assets is shrinking, and promoters have used the loans for rather more personal purposes than is normal, leaving little for the banks to recover. The central bank has been disappointing in its role as policeman, not surprising, perhaps, when one remembers that the Nepal Rastra Bank is also an arm of the government, headed by a government nominee. When no other government agency behaves in the national interest, why should the central bank, even if millions of dollars are being pumped into it in the hope of giving it teeth?

Which is why the Beed believes we are now in such a state that to understand the banking system here at all, we need to focus on the chances of survival of not just private banks, but also the regulator. Banks should be given leeway to merge and amalgamate, to make operations more efficient and productive. For banking companies to be viable in the long run, we need economies of scale. Quantity, not only quality. The central bank should live up to its role as regulator, if it issues guidelines, it needs to ensure that they are adhered to. It needs to facilitate decision-making, and develop an image as a regulator that is proactive. The way it handled the divestment of Indosuez points to a lot of things that need to be changed.

The banking sector provides vitally-needed infrastructure for business, trade and commerce. If it weakens, the entire economy feels the pinch.

Readers can post their views at arthabeed@yahoo.com