Banks are profitable. The days of enjoying high-interest rate margins are over.
CEO of Standard Chartered Bank Nepal, Anirvan Ghosh Dastidar has over 26 years of experience as a banker having started his career with ANZ Grindlays Bank in India.
Before his appointment as CEO of SCB Nepal, he was the Chief Executive Officer of SCB in Brunei, Philippines and Sri Lanka. His previous roles in India include senior positions such as Business Head for Priority Banking, Capital Markets and Regional Head of the Consumer Bank.
In an interview with B360’s Dibesh Dangol, Anirvan Ghosh Dastidar talks about the changes he has seen in the banking industry, the impact of Covid 19 and his thoughts on Nepal’s Monetary Policy 2020/21 among other things. Excerpts:
Having worked as a senior banking professional in various countries over almost three decades, what are some of the notable changes you have seen in the banking industry? Specifically, what are some of the key disruptive forces that are changing how banking is done in recent times?
In the last 2-3 years, the changes have been very dramatic. First is the emergence of new so-called banks; digital banks and challenger banks. Standard Chartered Bank has also launched the first and a new virtual bank called Moxin Hong Kong.
So, one is the era of new digital banks and today the regulators are working around these types of banks to develop regulations; earlier it was the other way around. Now with the Alipay and other digital wallets and systems, the regulators have to run, keep up and develop regulations.
Second is the new oil which is data. The way banks are now using data via blockchains and artificial intelligence is another big emergence in the banking industry. Analytics data is going to be the key which will differentiate everyone.
The third is the talent. Today the kind of people who are required in banks is very different from the people of the earlier generation. We get a lot of software engineers and people involved in innovation. Our way of working has changed and is more based on agile and collaborative working now. Even the hierarchy system and the design of our working space have changed.
The consumer’s behaviour and pattern have changed. Digital has become a big word in the banking industry. So, the way consumers are interacting with banks has changed which itself is one of the disruptions. This has led to the thinking of how do banks bring digital innovation to service the clients and get better analytics. If you look at the impact of Covid 19, just this whole lockdown has changed or accelerated the way we are looking at banking.
What are the areas that are most impacted by Covid 19 in the banking sector?
All the sectors have been impacted by the pandemic. I can’t think of any sector that hasn’t been hit by the pandemic except for the fact that pharma and healthcare have opened new possibilities. Banks are an integral part of the economy and if the economy is impacted so are the banks. We are the catalyst and our jobs are to construct and be a part of the economy. It’s obvious that in Nepal tourism has been the hardest hit sector. Because of the pandemic, migrant workers have returned consequently impacting the remittance flow and consumption pattern. Also, Nepal is an import-based economy and because of the pandemic imports are down by 30-35%. If imports are down so is the consumption. So, the pandemic is like the perfect storm that itself impacts the economy and lowers revenue for the government.
What is SCB Nepal’s plan to cope with the reduction in core banking profitability?
Banks are profitable. The days of enjoying high-interest rate margins are over. Our view is that we have a balance sheet which is aligned to our growth aspirations and the part we play in our communities and the sectors we operate. SCB’s participation model is very different. We can never be a 100% local bank though we are locally listed. We are limited in terms of our presence and our strength is our network since we are an international bank; we bring our network to Nepal and we take Nepal internationally. So, margins coming down don’t mean we aren’t profitable. Banks will still be profitable but will need to align itself in managing its balance sheets differently.
Do you think the government has adequate measures in place to address corrective actions to mitigate risks?
This is a question no government can easily answer. I don’t think anybody will be satisfied but frankly, I think the NRB has done a great job. This is a very difficult time. First and foremost, if you see what NRB is trying to push forward is to bring a sense of discipline amongst the banks, level the playing field and have a healthy competition with the right governance and framework. The lot of regulations which are coming in is just to get the right behaviour from the banks. If you see some of the policies which have been announced are first for the consumers like providing relief, refinance, payment moratorium and differences. The whole regulations around are around giving relief to the consumers and sectors. But we can argue whether it was enough or not. Then on the regulation side, it has given a lot of help to the banks like CD ratio, capital, defering certain actions like issuing debentures just to give time for banks to settle down, recover and play its part in providing relief from the pandemic.
What are your comments on the Monetary Policy 2020/21? What do you think of the refinancing mechanisms?
The monetary policy is very progressive largely in three parts. One is a lot of announcements are towards Covid 19 impacted reliefs like restructuring, working capital deferment, etc which are concentrated on debt relief. The second part is regulatory relief in terms of giving banks more space or liquidity to the market and giving banks more time to address capital requirement. The third is the priority sector lending in which the coverage has gone up. So in spirit, all the right things have been announced by NRB in the Monetary Policy.
SCB Nepal is considered to have a traditional approach to its customer service and product innovation. It is also not viewed as an approachable and customer-friendly bank. Is this on purpose?
We don’t agree with this. Yes, we have a lesser number of branches but our participation model is different. We are probably more Kathmandu-centric and being an international bank our primary objective is to bring the network to Nepal from and to the clients who bank with us globally. We are the first port for FDI. I don’t think we are traditional or conservative because some of the technology we use is very popular with the corporate and probably the most advanced app in the market. We also do a lot of work with the government on sophisticated products and we are the banker to the banks. On the retail side, I think it’s not fair to say that we are not approachable. We do have a sizable consumer base and we are probably more inclined towards mass affluent because we are an international bank. We are trying to reposition ourselves as the bank for the young. We have made a lot of investments in the digital area; our mobile app and internet banking are second to none. We are yet to integrate into connect IPS but we are coming up with something more sophisticated which will supplement or even complement connect IPS. We use a lot of data and analytics for KYC and especially on our credit side.
How much strategic priority have you given to digitisation including AI and robotics solutions? Will you be accelerating digital transformation through partnerships and collaborations with the fintech community?
There needs to be a balance because digitisation has become a sort of fashion. Digitisation is a big world and we have to understand the sort of digitisation necessary in every sector. We have invested in the technology front. If you look at the bank currently, our offices are going to look different and our staffs are going to work very differently. We would probably be the first bank whose work-from-home policy has been a success. We have operated completely during lockdown with almost 80-90% staffs working from home.
We are participating in the digital space in terms of payment indication, real-time and contactless bank; an upgraded kind of payment mechanisms for our clients and customers. At the same time, there is a balance. We need our people, relationships and optimise our branches. We want more people using our machines and we want more people to come to branches more as a financial centre where they can discuss their investments and their other means.
We already have been partnering and collaborating. In the consumer space, we already got partnerships going on and have tied up with e-commerce platforms. We are also in the process of talking to some of the fintech companies.
What are the challenges for SCB Nepal to meet Monetary Policy directive of commercial banks having to lend at least 15% to agriculture sector by mid-July 2023, 15% to MSME and 10% to the hydropower sector of their total loans by mid-July 2024?
It is a challenge because our reach is very limited but we have a very good client base. We are taking the requirements of the agriculture sector very seriously. There could be opportunities for the industry in terms of bonds which might come in like agriculture and energy bonds where SCB can bring a lot of expertise to float these ideas. There are challenges but the bank intends to provide and meet these targets and find ways around it through our clients and offices which are represented across some of the provinces.
What are some of the measures you are or will be taking to reduce the economic impact of Covid 19 on SCB Nepal’s functions?
The good news is that the bank has very strong capital and balance sheet. The impact we are facing is similar to what everybody is facing, but we are fit for growth because we capitalise strongly and are highly liquid. We are making sizable investments in our premises and digital strategies. We need to come out of this pandemic situation or into the new normal and start operating in a manner where the impact will be less. Today SCB has the lowest cost of funds and we are a very efficient bank. How do we deploy our balance sheet to reduce the impact? How do we digitise more so that our clients find it easy to interact with us and more people can bank with us? And the most important is our people. How do we create a working environment in a post-Covid 19 model where our people find it difficult to work whether its work-from-home or agile working or coordination of work-from-home and office? These are the questions that need to be answered so that the impact of Covid 19 or any other crisis can be avoided.
Could you also share about some of the relief work that SCB Nepal has undertaken for customers, staff and community during the pandemic?
We are very proud of our community work. Broadly we spend more than $500,000 which is a lot of money in Nepal. We did a variety of things. One is we did participate in the Prime Minister’s Central Natural Disaster Relief Fund and have helped the people that have been highly impacted by the pandemic especially in the tourism sector. We have tied up with international bodies like Action Aid International Nepal where we have been running a big sponsorship or partnership in terms of helping communities. We have also partnered with the United Nations. Our role largely is to work with communities which have been severely impacted and help them survive through this crisis. The idea is not to do just charity, the idea is to bring them back and help them survive so that we can address and take opportunities when the growth starts.
Staffs are our number one priority along with the clients. The lockdown was a good test and the staffs have appreciated what we have done. We are very flexible and our policies around the concept of work-from-home are probably one of the best. Our coverage and support system for staffs in terms of financial needs, health requirements and their well-being has been well taken care of and will continue. Regarding clients, the whole digital journey in terms of the clients having smooth and effortless banking without having come to a branch and do it online itself is something we have been doing and will continue because I don’t think we have reached our optimum.
What are your thoughts on the pace of economic recovery from the pandemic for Nepal?
The growth rate of Nepal as per the World Bank and International Monetary Fund ranges in the region of 1.8 – 2.7% which is great because in this part of the world everybody has got negative rates. Nepal has been very resilient though the country has gone through a major earthquake and civil unrest. The country has always bounced back and has got a very young population. If things open up, sectors like travel, tourism and agriculture can pick up with some of the infrastructures of development and can increase the growth rate by 1 – 2%, I think Nepal has a good story coming.