Tread carefully

The decision of the government to establish a Hydropower Development Bank to harness the country’s hydropower potential is a right one, but we demand that the government make sure it does not suffer from political interference and an incompetent board of governors. The country’s financial sector, governed as it is by its prudential norms, cannot make as much investment in this sector as needed. The more so given low resource mobilization capacity and the liquidity crunch that has persisted in the system. In such a situation, it would be foolhardy to expect banks and financial institutions to jump in and make a big contribution to the development of hydropower.



However, we demand that strong measures be taken to make sure the new hydropower development bank does not suffer the fate of other public sector banks. After all, when the government established the Nepal Industrial Development Corporation some four decades ago, its sole goal was to spur industrialization. The Agricultural Development Bank was likewise set up exclusively for supporting the development of agriculture. Both of these had noble missions. But decades down the line, they only stand testimony to how institutions fail when the government involves itself in such business.



Rastriya Banijya Bank and Nepal Bank Limited, the two public sector commercial banks, have fared no better. Instead of serving the public, these institutions have added over Rs 8 billion to the debt burden of Nepalis as the government has ultimately had to take loans from donors to salvage them.



We cannot say for certain that history will not repeat itself. Hence, we are speaking these words of caution and demanding that the government take all pre-emptive measures. Mere statements that it has learnt from past mistakes will not serve. We want a visionary approach in this connection. We urge the government to first promise that the new bank will be managed by independent professionals having the requisite knowhow. If required it should not hesitate to appoint international experts to lead the management.



Secondly, we demand that the government clearly define its role and its presence in such a bank. Members of the board of directors coming from the promoters’ side should be competent individuals. The idea of bringing in donors like the Asian Development Bank and the International Finance Corporation appears to be a good one because their presence can help check unwanted government interference and also encourage competence on the board. Thirdly, we also demand from the government a clear divestment plan -- so that it does not linger in the business forever.



Fourthly, we believe the role of a regulator will be critical for the new bank. Given the structure and nature of its business, which will call for a different set of prudential directives, we urge Nepal Rastra Bank to orient its staff and develop its supervisory capacity accordingly.

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