Strengthening NRB our priority

The government on Sunday appointed Gopal Kafle and Maha Prasad Adhikari as deputy governors of Nepal Rastra Bank (NRB). The Kathmandu Post talked with them about the challenges facing NRB and the country’s financial system. Exerpts.


As new deputy governors of NRB, what are the challenges you see?


Gopal Kafle - According to me, balance of payment deficit, inflation, liquidity problem in the banking sector and financial discipline are the main challenges. We must work for increasing investment in productive sectors and taming inflation. In order to address the BoP deficit, we have to ensure that remittance flow remains stable. I think indiscipline in the financial sector can be controlled by strengthening NRB.


Maha Prasad Adhikari - I think the main challenge before us is to maintain financial stability. Given the large number of banks and financial institutions (BFIs), there has been unholy competition among them, posing risk to the financial system. Bad corporate governance is another challenge for the regulator. Liquidity crunch being faced by the banking system must be addressed.


Over the last two years, many instances of bad corporate governance have appeared in the banking system. How are you going address this?


Kafle - A strong central bank is a must to control bad corporate governance in the banking system which, of late, seems rising. As a senior deputy governor, my job will be to strengthen regulation and supervision on the part of the NRB. The central bank will not accept any malpractices of BFIs. One of the main reasons behind the disciplinary problems in the banking sector is due to entry of people who were not familiar with banking. Our earlier licensing policy gave priority to the capital requirement only, due to which anyone became promoters without having knowledge and experience. Therefore, we will conduct proper tests while issuing licence to BFIs.


Adhikari - There are prudential regulations in place and we have to enforce them effectively to control bad governance. There are mechanisms to take action against those involved in malpractices. All the actions taken against BFIs don’t come to the public as well.


Don’t you think that the central bank’s recent moves such as guidelines on CEOs’ salary and service charge have widened the rift between NRB and BFIs?


Kafle - There shouldn’t be any differences between the central bank and the BFIs and we’re ready to address BFIs’ concerns. The central bank had taken some measures to bring discipline in the banking system. Unfortunately, some bankers took this as NRB’s attempt to control banks. We will continue to adopt policy based on liberalisation.


Adhikari - It is natural to see difference of opinions, as priorities are different. The core objective of BFIs is profit maximisation, while the central bank’s objective is to bring financial stability. When the central bank takes some measure to stabilise the banking sector, it is natural to see some resentment on the part of bankers.

Posted on: 2010-12-30 09:08

http://www.ekantipur.com/2010/12/30/business/strengthening-nrb-our-priority/327279/