BFIs have challenge to extend banking service in remote areas

Kiran Kumar Shrestha

Chief Executive Officer, Rastriya Banijjya Bank Limited

With the announcement of the national campaign ‘Open Bank Account’, the government has started to walk with the private sector banks which has increased trust between them. We are feeling encouraged with the new campaign as the government has considered banks and financial institutions (BFIs) an important partner in the national prosperity campaign. But BFIs have challenges to extend banking services in remote areas. 

It is difficult to keep human resources there, operation cost is high and there are problems in networking and security. Therefore, the government should announce incentives such as discount in tax and capital adequacy. If security and incentives are provided, we are ready even to provide mobile banking services to remote villages.

BFIs are working to enhance the financial literacy among the masses. But, in order to make the national campaign a successful one, we need to promote access to the BFIs, support of the local bodies and greater digitalization. Use of technology will simplify the things. 

When people can open their bank account from their home or offices and make most of the transactions instantly in a cashless manner through digital device, they will be motivated to use it. Use of technology must be promoted if we have to attract the youth to the banks.

Similarly, the government should include the class ‘B’, ‘C’ and ‘D’ - development bank, finance companies and microfinance banks respectively, in its banking definition and allow them to go to the local levels. Currently, only class ‘A’ commercial banks are allowed to mobilise government funds which limits other BFIs to take risk to expand their services to the remote villages where there are less economic activities.

Banking is the most transparent and most regulated business sector in the country. BFIs don’t cheat their customers as they have to be transparent in their every activity. It is also not true that we earn a huge profit while mobilise deposits at a very low interest rate. 

We have to follow the Nepal Rastra Bank guidelines to maintain the spread rate below 5 per cent. Many commercial banks with above Rs. 8 billion paid-up capital are earning Rs. 500 million to Rs 2 billion in profits which is normal.

Recently, BFIs are facing growing operational and technological risks. Use of digital technology has promoted the use of banking services and speeded up the transactions but at the same time it has created threats of data and money theft, hacking and fund embezzlements.

Banking sector regulator, NRB, has strictly introduced the ‘Know Your Customer (KYC)’ provision which scared some people. But, we must understand that it was for the good of the country and the banking institution since the country has promised to implement anti-money laundering provisions and there will be an international audit of Nepal’s efforts in discouraging money-laundering.

Published in The Rising Nepal daily on 15 April 2019.