The state-owned bank, which recently received a capital injection of Rs 4.32 billion from the government, is raising Rs 2.5 billion by converting SDR, an artificial world currency introduced by the International Monetary Fund. [break]
The SDR was extended to the government by the World Bank following RBB´s enrolment in the financial sector reform program in 2003. The bank is receiving the amount as loan from the government.
The bank is also raising additional Rs 860 million by converting irredeemable preference shares - an ingredient that contributes to formation of a company´s capital - including dividends on the equity.
“These processes of raising funds through conversion of SDR and preference shares are expected to be complete within next four months,” RBB CEO Krishna Prasad Sharma told Republica. “Once complete, the bank´s negative net worth will turn into positive.”
The bank, which is the largest in the country in terms of assets, currently has a negative net worth of Rs 7.39 billion. It also has one of the highest non-performing loans of 7.5 percent in the banking industry.
The bank, which once used to be one of the profitable financial institutions in the country, had started generating losses after various sector started exerting pressure on it to give away loans without adequate guarantee. And by early 2002 it had accumulated non performing loans of over 60 percent.
The financial condition of the bank has improved since a profession management team started overseeing it in January 2003, under the financial sector reform program. And only last fiscal year, the bank, which managed to enlarge its deposits and credit portfolios to Rs 87 billion and Rs 40 billion respectively, generated profit before tax of Rs 1.68 billion.
Yet a lot needs to be done in terms of collecting debts from willful defaulters, who are stubborn about not repaying the credit.
The bank, which recovered Rs 750 million in bad debts last fiscal year, still has bad loans to the tune of around Rs 3 billion. “But considering the progress we are making, we are targeting to bring down the portion of bad loans to below five percent of the total credit portfolio by January 2013,” Sharma said.
Sharma also informed the bank would be focusing on extending credit to export-oriented firms, agricultural sector and small and medium enterprises in the current fiscal year. “We also plan on active deployment of branchless banking service with commencement of pilot projects in Chatre of Kavrepalanchowk and Triveni of Nawalparasi,” Sharma said.
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