At a time when the Nepali banking sector is undergoing a transformation, Standard Chartered Bank Nepal (SCBN) is diversifying its activities in line with the socio-economic changes taking place in the country. The bank, which was established in 1987, is now focusing on expanding its presence in both retail as well as corporate and institutional banking.

Gorakh Rana, Head of Commercial and Global Banking at SCBN, says that the bank is well poised to face future challenges. In a conversation with Sarthak Raj Baral of New Business Age at the bank's head office, Rana spoke about the changes he has observed in Nepal’s banking industry, digital disruption, the Belt and Road Initiative (BRI) and Nepal’s macroeconomic environment, among other pertinent topics. Excerpts:

As a banker with 25 years of experience in the Nepali financial services sector, how do you observe the changes taking place in the Nepali banking industry?
In terms of scale, scope, regulatory requirements and the complexity, a lot has changed over the last 25 years. The scale is pretty evident from the number of banks and branches. We now have 27 commercial banks. At that time, 25 years ago, I think the number was six or seven. In terms of scope, looking at the kind of activities we used to do, more so from a deposit-taking, lending and trade, the market has evolved quite significantly over the years in terms of new products and variants that are introduced in the market, although on the lower end of the product spectrum. Perhaps because of the licensing requirements, but even then, the products that have been introduced have been more customer-friendly and more palatable for the clients to use.

Along with that, the regulations have also evolved. Predominantly, the way we look at it, it’s for better functioning of the marketplace. Similarly, complexity, competition and other factors come into play as the market evolves. But, if you compare it to other more developed economies, there’s still much to be done. 

Most of the other economies, where Standard Chartered has been operating, are more or less under universal banking licenses, where you can do both debt capital markets as well as equity capital markets. That is in more advanced economies. Over here, it’s still under different segments of the regulation, which doesn’t fall under the Nepal Rastra Bank (NRB) regulations. But overall, if I were to summarise scale, scope, complexity, regulations all have evolved and we are well poised to face future challenges.

Digital disruption is taking place the world over led by Fintech companies challenging the status quo represented by traditional banks. How is the pace of digitisation in Nepal and are the banks ready for the upcoming disruption?
I think it’s going to be a rude awakening for a lot of the market players. So far, whatever is available in the market or whatever products have been introduced in the market, it’s pretty off-the-shelf, simple products. There’s not much API usage and not much data mining that is used. That being said, it has evolved over the last couple of years especially with better internet connectivity. Everywhere I go I see people, particularly young adults, on their smartphones. So the smartphone penetration which has come should harbour the explosion of digitisation, especially in the banking sector. It’s there, but I think it’s at a simmering point, ready to explode and banks better be ready for it. 

We already have an online presence and we will soon be launching new products to increase awareness and acceptability. That is where we have seen challenges. We have been at it for quite some time but adoption and acceptance of digital products were slightly low but I think most people are now ready. And even on the corporate side of things, there is a lot of adoption. It generally starts through simple things like looking at the balance inquiry, then its transaction initiation. In fact, we have a tried and tested product that we make available to our corporate clients and we are even doing more advanced kind of products wherein the systems talk to each other through APIs. So we are there, we just wish the adoption was higher. 

Banking sector observers say that SCB Nepal in the last one year has been trying to change its long-held image as a ‘conservative lender.’ How has the bank diversified its business and banking operations?
We have always had that label, but the way I look at, it’s more about transparency. We have always remained open for business. We do have our certain protocols or due diligence that we go through. And largely on account of increased transparency, maybe we are able to do more with the clients. We have focused on onboarding new clients and doing more with the existing clients. We have introduced certain variants in products to enhance usability. But we have always remained open for business and the way I look at it, we are just doing more. 

Has the diversification drive been helpful for SCB Nepal to compete with local banks and financial institutions? 
At the heart of our DNA is that we are a network bank. And being the only international bank in Nepal puts us in a unique value proposition as far as our clients are concerned. The throw and catch business is what we do globally, and we are very good at it. 

Currently, as I alluded to earlier, we are trying to do more with our existing clients while at the same time trying to increase our market penetration as well as increase our product penetration with our existing base of clients. So, that way, we have been able to have good results.

What are the major areas of focus for SCB Nepal at present? 
The way we look at it, it’s a client journey, so we are trying to make that as seamless as possible. Predominantly, to focus on areas where we have had feedback from clients as to something could be simpler, then we try to simplify things for the client. And by virtue of doing that, engaging with the clients more, listening to them more and thereby getting more wallet share out of the client on their banking transactions. So that’s what we have been focusing on, both on the retail side as well as the corporate and institutional banking side.

How do you observe the current macroeconomic environment in Nepal? Is it encouraging or discouraging for a foreign bank like SCB Nepal to operate and invest here? 
In addition to abiding by the laws and regulations of Nepal, being a subsidiary of international bank, certain regulations of the parent regulator also have to be adhered to. So the way I look at it, the regulations that are applicable, let’s say only for a local bank, we have something in addition to that. But as far as the current macroeconomic environment of Nepal is concerned, I think the building blocks are in place. That’s how we are envisioning it. There is political stability and on top of that, there are NRB policies which are supportive of the larger economic agenda of the country. There is continuity in the programmes although certain things could always be better. With all of those areas falling into place, we are very positive of the developments and growth rates. On the whole we are happy. 

Regarding the second half of your question, we have been here since 1986 and in so far as the level of engagement and support we get, we are encouraged to remain here. If you were to consider returns, profitability and managing other kinds of risks that businesses typically face, over the years, the trend has been positive. As we look forward, there are certain challenges and regulations that are coming which could potentially impact certain deliverables which we are engaging with the concerned stakeholders. But on the whole, the bank has been happy and satisfied with the overall business environment in Nepal.

The recurring shortage of investment-grade liquidity has not been acute for BFIs in Nepal now, unlike two to three years ago. Is it because the banks have sufficient investible funds or that the demand for investment in the country has gone down?
I think the industry, in general, has learned to anticipate and cope with the cyclicality, that’s one of the reasons. If you were to take a look at the growth rate, earlier yes, post the reconstruction phase the demand for assets was slightly more for investments and maybe on the sources side of the balance sheet it was pacing the growth. But I think that has largely stabilised for now. If you look at figures for the last couple of months, yes the cyclicality is there, but nevertheless, the growth on both sides of the balance sheet is more or less stable. Also, I think the industry is comfortable around 77-78 percent right now and we haven’t seen any decrease in demand for investments. We have been hearing things to the contrary, but as a bank, we haven’t seen that.

Standard Chartered is one of the key multinational banks to fund and promote China’s ambitious Belt and Road Initiative (BRI). How do you think Nepal as a signatory to BRI can make the most out of the initiative in terms of its own economic development?
The way BRI has so far translated into Nepal; it’s mainly on a G2G (government to government) basis. There have been some private parties that have tried to come in and we have had discussions with them but after that, it has fizzled out. On the positive side, we are the only bank that is present on both sides, in both countries. Even from the group level, we have made a lot of commitments that were supposed to be fulfilled by 2021 but were already fulfilled in 2019. So we are very well placed to bring the BRI investments onshore and although we do bank certain BRI associated projects, I obviously am not in a position to share the names with you. But whatever can be done, and whatever is in our remit, we are doing to encourage this very important trade corridor for Nepal. 

As the Head of SCB Nepal’s Commercial and Global Banking, you are responsible for handling Chinese clients in Nepal. How do you see the prospects for Chinese investments in Nepal? What particular sectors are Chinese investors interested in? 
On the corporate side of things, based on the queries we have had and the relationship we have maintained with some of the Chinese investors, it’s predominantly infrastructure-related projects. Be it hydro or airports or people looking into certain road projects or transmission projects. That’s the kind of client profile that we have. And the key to facilitating this business plays to our strength. Like I alluded to earlier, the trade corridor is very important and our presence in both countries helps us greatly. 

While handling the Chinese clients, what difficulties have you observed in terms of getting government services, foreign currency exchange and acquisition of land, among others?
I will be honest with you – the frustration that has been shared with us by the Chinese investors is largely around getting timely approvals in place. Most of these entities are state-owned enterprises out of China that are doing business here. The other concerns they have are mainly centred on regulatory approvals and the delays in that process. The other challenge we discuss and one for which we will hopefully have a solution soon is hedging requirements. Because their borrowings or their investments are all dollar-denominated, whereas, for the majority of the projects over here, the cashflows are in the local currency. That’s a piece of the puzzle that we need to fix. It comes at a very high cost; hopefully, if we are able to address the cost side of it then Nepal as a destination will be more attractive to them. 

What services do investors from China seek from Nepal’s government authorities so that they don’t have to face hassles in investing and operating businesses here?
They want support. We could facilitate it more if we had corporate lawyers who spoke both languages or people who are able to converse with them more fluently in their language. Whenever such large clients come to us, we have a service that we provide to them through corridor bankers who specialise in providing and advising the clients of that respective home country vis-a-vis the destination country and getting them accustomed to the local laws and requirements. Apart from that, I think generally they are happy with Nepal.