Nepali Times: What is your view on the court's refusal to grant stay orders on willful defaulters?
Siddhant R Pandey: In our experience, in the past few months, the courts have acted decisively in not granting stay orders in the case of our defaulters. We certainly hope that this will be the norm rather than the exception. The only recourse financial institutions have in recovering bad debts is through the legal channel. When all procedures are complied with and the courts do not support the actions, the entire process of financial sector reform becomes futile.

I believe that whether a defaulter is willful or not, when the banks and financial institutions undertake and fulfil the processes laid out by the rule of law, the courts should honour and expedite all actions. The recent move is welcoming.

Does this mean Nepal's banking sector reforms are on track?
I wouldn't go that far. There should be a separate judicial body that looks into these problems the banks and financial sectors are facing. I don't mean just the debt recovery tribunal. Financial sector reform without judicial sector reform, to use an analogy, is equivalent to jumping out of an airplane without a parachute on. Basically, prudent regulatory systems should be in place. Therefore, it is imperative that our judicial system undergoes reform measures and keeps up with the times. Otherwise the loopholes in the system can and will be exploited to retard any progress.

How are credit institutions like yours faring in general? The economic stagnation doesn't seem to be affecting banking as much as other business sectors.
The handful of professional and innovative players in the market will continue to survive and do well. We at Ace Finance have continued to evolve with the times. Our ability to identify, analyse and respond to opportunities has served us well. In the fiscal year 2004/05 we will be in a position to give our shareholders at least 15 percent cash dividend. Having said that, I think banks and financial institutions will have to go through a time of deep introspection in the near future. Investment banking products need to be introduced and new financial instruments allowed. The recent introduction of bonds being traded in the secondary market is a healthy start towards developing the financial market. I fear that the next fiscal year will be difficult for the financial sector. The downturn in the economy will have a systemic effect in the entire market.

Isn't the market too crowded and the competition getting too cut-throat for it to be cost effective?
There are unhealthy practices in the market. I feel that unprofessional players will be slowly weeded out. Mergers and acquisitions will have to take place to meet the capital requirements set out by Nepal Rastra Bank. However, I feel there still is ample space for innovative players. In terms of GDP, the percentage of total capital of banks and financial institutions is about 0.65 percent, which is not too high. In numbers there are many banks and financial institutions but in terms of capitalisation, at present, it is nominal. In the present context, we have enormous difficulties raising funds for even a mid-level hydropower plant of about 20 megawatts.

You are turning Ace from a finance company into a development bank in the more classic sense. Why is that?
In Nepal, the categorisation of financial institutions is governed by the capital base. The activities allowed are dependent on the capital as well. We have reached saturation point at our present core capital base of Rs 120 million. In order to grow we need to inject more capital and be allowed to perform further activities. Our strategy can only be fulfilled once we upgrade.