February 27: At a time when the distributable profits of banks are decreasing due to the economic slowdown, the Governor of Nepal Rastra Bank Maha Prasad Adhikari has urged bankers to make the institution strong and sustainable even if they have to deal with low returns for some time.

During an interaction program organized by the Nepal Bankers Association on 'Latest situation of Nepal's banking system' on Monday, Sunil KC, president of the association presented a paper and mentioned that the distributable profit of banks is negative, bad loans are high and the return on capital is also decreasing. Responding to his remarks, Governor Adhikari said that the central bank is in the process of reforming the financial sector and it will be difficult for some time.

"Reforms may be painful for some time, the growth rate has also been negative during major reforms," he said.

Governor Adhikari said that the policy of central bank takes effect in the long term and it is not fair for someone to quickly criticize the NRB.

Recalling that there was opposition when the CD ratio was implemented in the past, he said, "Now that's the reason why banks have been strong."

He added that the bankers themselves protested when the central bank implemented the CD ratio to stop the flow of credit when it was increasing, and added, "Now, there has been no problem even with the withdrawal of Rs 27 billion from NIC Asia Bank. If the CD ratio had not been implemented, the situation would have been different."

As per the analysis of the NRB governor, there is a problem at present because banks provided excessive loans in the past.

“Questions were raised in past regarding over-financing," he said. “There wouldn’t have been any problem if the banks had disbursed the loans by considering the paying capacity of the borrowers,” he added.

However, he said that there is no need to panic as the credit risk system is tight and most of the loans are based on mortgages.

At present, there is a foreign currency reserve that can cover 14 months of imports, said the governor. The governor claimed that the cooperatives and informal economy occupies a large part and when that sector is in trouble, the banks are affected. He said that the cooperatives and informal economy flourished because the services of the banks could not reach the lower classes.

Governor Adhikari said that due to the problems in the cooperatives, the bank's loan recovery was also affected.

The current society does not understand the sensitivity of the banking sector and banks are being accused of feudalism, moneylending and usury, said the governor. When I became the governor, the profit of the banks was Rs 70 billion when the portfolio was Rs 3200 billion. Now the profit is not even Rs 70 billion when the portfolio is Rs 5000 billion.”

He alleged that the groups with vested interest wants to make the banking sector a failure and urged all to be cautious.