Nepali Times
"Things are going to be in limbo again..."

Within a year of opening its doors for business, Laxmi Bank has already inspired enough confidence to show about Rs 1 billion. Director and CEO Suman Joshi talks shop, success and explains why banking is not about to go bust.

Nepali Times: Aren't there far too many banks in Nepal for such a small market?
Suman Joshi:
At the moment there are 17 banks, 15 of them in the private sector. It does seem like a sizeable number for an economy like ours, but most private sector commercial banks began in the early and mid-90s when the economy was growing at an impressive rate. Sadly, that growth was not sustained. Now, we have a situation where we may think of our economy as 'overbanked'. However, we can't rule out a turnaround, and should that happen, then there is potential for every bank to operate profitably. On that subject, last year every private sector bank posted operating profits. Banks are still making money.

We heard there was a run on the banks when the ceasefire was called off.
That phenomenon is largely true for government-owned banks in remote and semi-urban areas. As far as I'm aware, no private bank has faced this situation.

But we were told otherwise, that too, right here in the capital.
Then I wouldn't attribute it directly to the insurgency, after all, depositors and the business community would've cleared their accounts long before the recent fracture in peace talks. We have all been on this path before.

So how has the insurgency affected the banking sector?
It definitely impacted the economy as a whole, but the ceasefire induced businesses to plan for further growth. The recent developments mean things are going to be in limbo again. Till things get a little more certain, we are not going to chase demand for credit from the business community, which means less business for us too.

Dipping interest rates must be a serious matter of concern.
It reflects the economy we operate in. If you don't have other investment avenues and if your stock market remains bearish, you put your money in the bank. And the banks will give you what they can-it's a purely demand-supply situation. Interest rates in India are dropping at a faster pace than here in Nepal, but we face a further dip because of competition among banks and the lack of investment opportunities for depositors.

Which means there is plenty of liquidity in the market.
Oh yes, 15 private sector banks currently hold deposits in excess of Rs 100 billion while overall lending stands at less than Rs 70 billion. Nepal Rastra Bank recently issued government bonds worth about Rs 4.5 billion, which was over-subscribed by almost four times. When we issued our IPO, we had asked for about Rs 96 million and we ended up collecting Rs 250 million. There is definitely money in the market.

Any idea where all the money is coming from, when for all intents and purposes, the economy is in the dumps?
It could be a combination: annual remittances from abroad that is around Rs 70 billion plus and a middle class that is growing despite the recession. There is a massive urbanisation drive and people are moving into bigger and better things. People have ready cash because they have not been able to invest.

How did you engineer such a great response to the bank's IPO?
We floated an IPO of Rs 192.5 million that is, as of now, the largest in Nepali corporate history. From a layman's perspective, every thing was wrong about it-the timing, size, the bearish stock market, the lukewarm response to another bank's shares, but we ended up with a subscription of two and a half times more than what we expected and had to exercise an early closure.

Generally, we have been pretty successful in the small business segment. We actually started this a year ago in the form of loans to people who feed into the multinational and large corporations. They are essentially small businesses so we roled out a product called supply finance. It was very well received and that encouraged us to make a strategic decision to invest upto 25 percent of our book in the small business enterprises (SMEs) because we believe that today's small businesses are tomorrow's big corporations. In doing so, we are also expanding the overall size of the market for the bank. There is still a lot of untapped potential.

Every new entrant seems to be eyeing SMEs.
The Nepali economy is so basic that banks can offer only vanilla products. If we all work together, we can create benefits for everyone. Loans to SMEs have been around for a while, it just didn't receive much attention before.

Would you feel threatened if the state-owned Nepal Bank Limited and the Nepal Rastra Bank got their act together?
That would possibly change the equation. Given the size of the two government banks, if they become as efficient as the private banks, they would definitely be able to take away a large chunk of the pie. That would be very challenging for all private sector banks, not just ours.

Where is Laxmi Bank headed?
We are bringing in consumer finance, a fairly new phenomenon. It started three years ago and it is picking up rapidly. We offer internet banking, especially for the convenience of non-residential Nepalis (NRNs). At the moment we are looking into how we can tap into the huge remittance economy.

(11 JAN 2013 - 17 JAN 2013)