Govinda Gurung is the Chief Executive Officer of Agricultural Development Bank Ltd. He is a seasoned banker with over 28 years of experience in the commercial banking sector, both in Nepal and internationally. He holds an MBA from Nepal Commerce Campus, Tribhuvan University.
His banking career started in 1996 as a Management Trainee at Himalayan Bank Limited, where he rose to Head of Customer Relations at the Corporate (Main) Branch. Subsequently, he took on senior leadership roles at prominent financial institutions: Assistant General Manager at Global IME Bank Limited (formerly Global Bank Limited), Deputy General Manager at Mega Bank Nepal Limited, and both Deputy Chief Executive Officer and Chief Executive Officer at Civil Bank Limited. He also served as the Chief Executive Officer of Myanmar Citizens Bank Limited in Myanmar. Gurung was appointed CEO of Agricultural Development Bank Limited on February 20, 2023, following a competitive selection process.
His areas of expertise include risk assets and liability portfolio management, product design and development, bank marketing, clientele relationship management, financial statement analysis and management, strategic planning, integrated risk management functions, branding and corporate communications, investor relations management, governance and compliance management, HR management, leadership development, and overall bank management. Gurung has consistently enhanced his professional skills by participating in numerous advanced-level trainings, seminars, and workshops in banking and finance, general management, and leadership, both nationally and internationally.
Gurung discussed with the HRM Nepal how the banking sector has been contending with the economic slowdown, an adverse investment environment, and the necessary measures to swiftly navigate the ongoing turbulent times. Excerpts from the interview follow.
Q: Banks and financial institutions earned lucrative profits in FY 2024/25 despite the prolonged economic slowdown. How would you like to explain the status of ADBL based on key indicators?
A: Agricultural Development Bank Limited (ADBL) has significantly improved its performance in FY 2024/25 compared to previous fiscal years. The second quarter financial statement of 2022/23 positioned us at the bottom among the 20 commercial banks, and we were facing losses. I joined immediately after that second quarter, on February 20, 2023.
In the last quarter of FY 2022/23, we generated a profit of Rs. 2.35 billion. Our profit distribution capacity was 6.85%, with a distributable profit of Rs. 1.24 billion, though we did not distribute profit. In FY 2023/24, our operating profit surged to Rs. 4.13 billion, ranking us among the top seven commercial banks. For fiscal 2024/25, based on the unaudited/provisional financial statement, we generated an operating profit of Rs. 5.85 billion, placing Agricultural Development Bank in the top five among 20 commercial banks. Our Earnings Per Share (EPS) stands at Rs. 27.63, achieving the third position among commercial banks. We also rank fourth in terms of distributable profit.
Against this backdrop, ADBL has achieved astounding progress within a short period of time. We must acknowledge that we are a mid-table bank in terms of business size, standing at the 10th or 11th position for deposit and loan portfolios. In FY 2023/24, ADBL’s credit growth was almost double the industry average. In FY 2024/25, our credit growth (8.42%) was neck and neck with the industry average of 8.58%. We are still ahead of the industry average (11%) in deposit mobilisation, with 20.5% growth. Our profitability growth is 43% in FY 2024/25. Despite the distressful situation in the banking industry, which is primarily contributed by sluggish economic growth and a stressful economic climate, our growth and profitability are reasonably sound. Thus, we are moving ahead.
Q: What strategies and recovery measures enabled such a significant improvement in performance over a very short period?
A: Recovery is one aspect of our overall business strategy. When I took over, our Non-Performing Loan (NPL) stood at 4.52%. By the end of FY 2022/23, we successfully reduced the NPL to 2.68%. This increased moderately to 3.91% in FY 2023/24, and it has slightly decreased to 3.26% in the provisional balance sheet of FY 2024/25. However, the accurate NPL status will be confirmed after the final audit and adjustments from the Nepal Rastra Bank inspection. Comparing the NPL levels of FY 2023/24 and FY 2024/25, the NPL is expected to come down in the latter year.
Although the NPL was a mere 2.68% in FY 2022/23, provisioning coverage was increased, which consequently affected our profit. The NPL to loan loss provisioning coverage ratio was 104% in FY 2023/24. Moving into FY 2024/25, the NPL to loan loss provisioning was not significantly affected due to the substantial coverage set aside in previous fiscal years. On one hand, the NPL level slightly decreased from 3.91% to 3.26%; on the other hand, the necessary loan loss provisioning coverage was already established in prior years. In this view, our incremental loan loss provisioning in FY 2024/25 increased by only Rs. 10 crores. Despite this small additional provisioning, our Loan Loss Provisioning Coverage to NPL is almost around 134%. In terms of coverage for NPL, our loan loss provisioning is significantly good.
Recovery management was certainly a part of this improvement, but we also emphasised improving credit quality and loan loss provisioning. The major contribution to profitability is cost control, primarily achieved by minimising the deposit cost and, to some extent, operational cost. Previously, we had not focused on liability management. Effective management of yield, liability cost, operation cost, and regular asset cost (including depreciation) collectively improved profitability. It is difficult to fully minimise the cost of deposits (interest) because we cannot stop accepting deposits from the public, despite the adverse investment climate in the country. We have successfully maintained the interest rate spread between 3.90% to 3.96%, remaining below the 4% regulatory requirement.
Q: What is the current composition of ADBL’s deposits, and, as a government bank, do you have a high reliance on institutional deposits?
A: We do not have significant exposure to institutional deposits. The overall size of our fixed deposits is 51%. Half of this fixed deposit total is sourced from institutional depositors, with the remaining half coming from individual depositors. The other 49% of our total deposits is held in current, call, and saving deposits.
Q: Given the plummeting credit demand, what are the key areas where ADBL is currently investing its funds?
A: Along with providing credit, we have been actively investing in treasury bills, Nepal Rastra Bank (NRB) instruments, and interbank arbitrage, among other avenues. I must emphasise that we have not allowed liquid assets to remain idle. Allowing earning assets to sit idle would have significant long-term implications and consequences for the bank.
Q: Considering that NRB has recently initiated an asset quality review of the top 10 commercial banks, how would you assess ADBL’s credit portfolio, and specifically, what strategies did you implement to successfully minimise the NPL?
A: ADBL’s credit portfolio stands at Rs. 224.02 billion as of FY 2024/25. As I mentioned, we are a mid-table bank, and thus, we were not included in the asset quality review audit being carried out by the international audit firm, which was initiated by the NRB under the International Monetary Fund’s ECF programme.
We implemented a structural change that enabled us to reduce the size of the NPL. In our industry, recovery is typically confined to follow-ups and applying pressure on clients based on established processes, policies, guidelines, and NRB regulations. However, we reshaped the overall credit organisational structure with systematic control systems for loan monitoring, follow-ups, legal and administration, customer relations, customer communications, and loan approvals. We completely turned around the loan approval systems.
For example, branch managers or credit relationship managers used to personally onboard clients, process loans, approve loans, provide security documentation, and issue offer letters. They themselves would fix a limit on the system and handle the payment of fees and charges. This means that, in the past, and it is still prevalent in many banks and financial institutions, branch managers or credit relationship managers managed the end-to-end process. While there were established thresholds for local level branches, province level branches, and the head office, this practice presented an issue of governance due to functional role conflict and a conflict of interest (COI), which we were also practicing.
After assuming office, my first intervention was to bar those responsible for business development under credit-related functions from the responsibilities of approval, risk review, and credit administration. Previously, ADBL did not have the concept of a dedicated Relationship Manager (RM); all staff members used to look into credit, as it was not treated as a specific function. We introduced Credit Relationship Managers, assigning them to handle a specific number of credit customers. The RM is responsible for renewals, customer communications, follow-up, and onboarding new customers. Their responsibility is to increase the credit volume and revenue target. However, they have been given recommendation authority only. If the same person (who has been given volume and revenue targets) is given operating authority, they are likely to start approving loans haphazardly. Similarly, the branch manager is the business head; if they supervise four relationship managers, the accumulated volume and revenue target becomes their target. The branch manager was also refrained from approval authority; they, too, can only recommend for credit.
We have separated business and (credit) control vertically from the bottom up to the Deputy General Manager level. We classified the specific roles, such as: Business DGM; Risk Review DGM; Approval and Control DGM; and Administration/Implementation. This was a major decision that contributed significantly to both asset quality and recovery. Our current credit apparatus has five verticals: business vertical; risk review; approval; credit administration; and recovery.
Q: How independent and functionally separated are the risk review and recovery departments within the bank’s structure?
A: We have two Deputy General Managers (DGMs) in the business vertical, and I, as the CEO, oversee both operations and businesses. Files recommended by the business team are then forwarded to Risk Review.
The Risk Review department is entirely independent; it reports only to the Board Committee, not even the CEO. There is a two-member Board Committee that highlights risks within the credit process. Based on the risk alerts generated by the Risk Review department, the Approval department then analyses the risk-to-return ratio from the control perspective. We acknowledge that every credit proposal carries some risks; therefore, the approval team assesses the risk-to-return proposition, considering factors like interest rate, fees and commission, turnover cycles, variable incomes, and risk mitigation measures (such as adding collateral, interest premium, and personal guarantee, among others). All these decision-making processes are handled by the Credit Approval team.
Following approval, the file goes to Administration, whose role is to ensure compliance with all covenants, terms, and conditions. Therefore, credit expansion cannot occur randomly. For instance, if the entire authority were given to one person, they might defer securing a personal guarantee for a month just to sanction the loan immediately and meet their target. However, with separate verticals, the Credit Administration team does not compromise on terms and conditions regarding file management, security management, and rate entry in the system.
Previously, the Recovery department was placed under the Legal department. After I joined, I decided to establish Recovery as a separate department, with legal functions acting as supportive hands. Recovery has a crucial role to play, and this decision was made to strengthen it with more independent functions. All these structural changes, coupled with defined roles and responsibilities, have established a systemic control from loan approval and processing right through to recovery via this robust structure. This has resulted in controlled revenue leakage, and improved documentation and asset qualities. Along with minimising operational risks, these changes have significantly contributed to the bank’s profit.
Q: Is ADBL also facing similar challenges with a high Non-Performing Loan rate, particularly within the priority sector, specifically agriculture?
A: This claim is a false narrative. The data does not support this interpretation. Neither do agriculture loans face recovery challenges, nor is subsidised credit being misused.
While I cannot speak for other banks, ADBL holds a large share of granular agricultural loans with a ticket size below Rs. 2 million, extended to 78,000 borrowers. Large-ticket-size corporate or SME-level agriculture loans are few in number. Our NPL in agriculture lending is below 3%, which is better than our average NPL of 3.26%. The NPL in subsidised credit is even lower than that. ADBL’s agriculture loan portion constitutes almost 30% of its total portfolio, which is sizable.
Therefore, some individuals who demand subsidised agricultural loans but are not served due to issues with their background, capacity, criteria, social background, or intention become very vocal and spread a negative narrative through social media.
Q: Have you issued agriculture bond as well?
A: Yes, we did issue an Agri Bond in FY 2021/22. Nepal Rastra Bank (NRB) has recognised ADBL as the lead bank for lending in the agriculture sector and authorised us to issue a bond worth Rs. 24 billion. This bond was purchased by banks and financial institutions and they are permitted to count this investment toward their agriculture financing requirement.
So far, we have issued a bond worth Rs. 18 billion immediately after obtaining approval from NRB. The remaining portion will be issued based on our agriculture lending requirements. We have 450 agriculturists among our 2,500 employees in the bank, demonstrating that we possess the necessary expertise. We prioritise lending to the agriculture sector, and if we face a situation of liquidity crunch in the days ahead, we will issue the remaining Rs. 6 billion of the Agri Bond.
Q: Given your banking expertise, and noting the functional similarity among Class ‘A’, ‘B’, and ‘C’ financial institutions post-consolidation, do you believe the NRB needs to rethink the existing banking business model?
A: We can strategically adopt digital lending, primarily for small-ticket-size loans ranging from Rs. 40,000 up to Rs. 2 lakhs. In such lending, we offer an amount up to double the borrower’s salary or income. For instance, if a borrower has a rental income of Rs. 2 lakhs, we will lend an optimum ticket size; however, if someone earns Rs. 50,000, we would lend up to Rs. 100,000.
In this regard, we have diversified our delivery channels. We rank fifth among banks in the adoption of foneloan technology. Furthermore, we are the only bank issuing an Overdraft Card, specifically focused on salaried employees. This product is globally unique and is only possible due to our T-24 core banking system.
The mechanism works as follows: as long as customers have a credit balance, they will earn interest in their savings account, into which the bank assigns a credit limit. The moment the credit balance hits ‘zero’, they can overdraw and subsequently pay interest within the same account. The same ATM card allows the customer to utilise both their deposit and the assigned credit limit.
However, for big-ticket-size loans or corporate loans, where legal documentation and site visits are mandatory for risk minimisation, the traditional branch-based business model will still be prevalent. This is also true for SMEs and corporate loans, where legal documentation and site visits are necessary for risk minimisation. It may be possible to manage these through digital channels in due course, once we have a robust ecosystem (including public services and public administrations) to support it. For example, we operate branches in rugged territories like Humla, Jumla, and other districts, where the quality of internet connectivity remains a significant issue.
Q: Considering the current regulatory pressure for branch expansion and the resulting lack of business volume that causes losses in many locations where a single branch may be sufficient, what is your perspective on the necessity and effectiveness of widespread bank branch presence?
A: Commercial banks have been consolidated to 20 from the previous 32. If bank branches are crowded in specific geographical locations, their numbers can be minimised by considering the volume of business and ensuring access to finance.
Let’s take an example: ADBL opened a branch a long time ago in Dillichaur of Guthichaur Rural Municipality, Jumla, acting as the financer for a micro hydropower project developed by a local cooperative in partnership with the Alternative Energy Promotion Centre. They are now demanding a commercial bank branch in the ward where the Guthichaur Rural Municipality office is located, even though the ADBL branch is already operating in another ward. Considering the size of the business volume, it is insufficient to sustain a single bank branch. Against this backdrop, there is a clear requirement for the merger and demerger of bank branches.
Many banks have already started closing physical branches with central bank approval. This is not primarily due to digital network expansion, but rather because of fierce competition and low business volume, which makes operating loss-making branches unsustainable. Physical branches will remain operational in specific locations, however, most transactions will become digital in due course.
In our bank, the daily volume of ECC (Electronic Cheque Clearing) transactions is typically up to 16,000. However, at the quarter-end of FY 2024/25, the daily cheque volume soared to 65,000. Thanks to digital support, these 65,000 inward transactions across the country were handled by just 10-12 employees. In this respect, we are becoming more efficient due to digital intervention. We are actively trying to manage conventional products and services digitally, which is not only diversifying service delivery but also making it more efficient.
Q: With current business confidence low and the investment climate unfavourable, yet banks are flushed with liquidity, how is ADBL planning to navigate this adverse situation?
A: The financial sector is heavily regulated, and we operate strictly under the central bank’s regulations. The Monetary Policy and related regulations are, to an extent, guided by the fiscal policy, meaning entities in the financial sector cannot deviate from the established path.
Within this regulatory framework, we strive to expand our customer outreach and introduce creative products. The state-owned mechanisms, however, must work to create an investment-friendly environment to restore confidence among entrepreneurs and business persons. Despite our efforts to expand outreach, we have not achieved the desired results due to the lack of confidence among investors.
Considering agriculture as a major pillar of the country’s economic development, we announced a 1% flat premium on agriculture loans starting October 18 (Mangsir 1). This is significantly lower than the previous interest rate premium of 4%, which was dismal. This represents the most convenient situation for borrowers in terms of cost of fund and accessibility of fund in Nepal’s banking history. Yet, borrowers are not encouraged, owing to various other factors such as political risks, lack of trust in state mechanisms, social behaviours, and downturned international trade, among others.
Banks are currently making optimum efforts because our survival is at stake. Right now, we are focusing on survival rather than simply maximising profit.
Q: Based on your projections, what is the future scenario for the banking sector, and do you anticipate interest rates rising slightly above their current level?
A: Interest rates could actually go even lower, to rock bottom. The current situation is quite similar to the year 2000 and around, when the savings rate was a mere 0.5% and the fixed deposit rate was between 1.5% to 2%.
On a positive note, Nepal Rastra Bank has introduced the Standing Deposit Facility (SDF). Banks have parked their idle deposits here and transferred that benefit to depositors. If banks are receiving 2.75% on idle funds under the SDF, that interest is being transferred to depositors; otherwise, the interest rate would be ‘zero’. The SDF facility has thus been safeguarding the interests of depositors.
I always reiterate that unless the implementing authorities of the state are in a strong position, they cannot provide a favourable investment climate. Currently, banks possess Rs. 1,000 billion in investable funds. The government also has infrastructure projects that offer immediate returns or can be considered low-hanging fruits. Examples include the Sunkoshi-Marin Diversion Project, which will generate 36 MW of electricity and irrigate 151,000 hectares of land, immediately enhancing crop yield by at least 20% to an optimum of 100% due to the irrigation facility. Another is the Bheri-Babai Diversion Project, generating 48 MW of electricity and irrigating 52,000 hectares of land year-round.
If the government were to issue 10-15-year development bonds (project-specific), it could secure resources at low rates. Instead of spending 2.75% on the SDF, a 6.7% coupon rate on bonds, with a two-year moratorium (for construction) and annual or maturity-based redemption thereafter, would be a superior option. This would create a multiplier benefit in the economy: it would create jobs, enhance economic productivity, and contribute to national saving and GDP. Consequently, the confidence of the private sector would be enhanced, and both consumption and aggregate demand would rise.
The question remains whether the existing government, mandated for election, will take these initiatives. However, while we are facing a difficult time, it is satisfactory that our debt repayment is regular. Furthermore, if we need to settle foreign debts, we can do so by raising domestic debt (local currency), as we have enough foreign exchange reserves. The major concern today is that we are losing opportunities and losing momentum despite having the chance to achieve rapid growth following the COVID-19 pandemic.
Q: Considering that unfavourable investment climate and low business confidence already hinder credit expansion, and IT entrepreneurs cite strict compliance requirements like disclosing Board and shareholder details as a deterrent to availing credit, why do banks maintain such stringent approval criteria?
A: All these measures are integral to risk management and ensuring recovery. Banks operate under the central bank’s regulatory requirements; consequently, all documentation and compliance checks ultimately serve to minimise risks and assure loan recovery. After all, a bank’s credit pool is derived from depositors’ money, and we must ensure its recovery so it can be paid back to the public. We are generally positive about promoting IT and other sectors in the economy. IT, in particular, involves creative products. It’s a highly competitive space where products and services face a high chance of becoming obsolete rapidly. For instance, when I was serving at Mega Bank, we were willing to finance ‘Tootle’, however, it couldn’t compete with global products within a short period. Therefore, our primary requirements before approving a loan are to analyse the client’s longevity, scalability, stability, technical back-end and front-end, customer need/demand, features, and facilities.
When approving a loan, the bank must also understand the people involved in the entity – their commitment, and their business and technological soundness. If we are extending credit, we need to know more about our clients. This is why the Board’s details, including KYC, strength, net worth, and credit history, must be disclosed to the lender, and a personal guarantee is required unless they provide collateral. Ultimately, this allows banks to gain confidence in approving credit, while requiring borrowers to be transparent and ensure strong governance and discipline.
Q: Why do banks and financial institutions continue to rely on collateral for loans, except for cost-intensive projects like hydropower, despite the implementation of the Secured Transactions Act?
A: It primarily depends on the risk perspective. While risk policies and guidelines are uniform, their implementation may vary across different borrowers. We consider practical aspects: if people have established success stories or a good track record, along with fallback alternatives/businesses or guarantees, then loan approval poses no issue.
We are already engaged in project financing for sectors like hydropower, steel, and cement. For instance, banks have lent up to Rs. 1,200 billion to the cement industry. These credits are sanctioned based on projected cash flow, alongside the borrower’s and Board’s personal guarantee and commitment. It is true that project financing is currently more confined to corporate houses because SMEs typically lack alternative cash flow sources. By the time they create success stories, they already have established cash flows. When a borrower is fresh, the project is new, and there are no alternative businesses, we require collateral to ensure recovery. Most smaller loans are collateral-based; otherwise, banks and financial institutions could suffer from non-performing loans, potentially dragging down the entire economy.
Regarding the Secured Transactions Registry (STR), it was recently introduced and is being tried and tested, yet we are quite positive about it. We have been running it in parallel with trading loans. Earlier, we used hypothecation loans pledged against stock, but without a registry system. For example, a stock of Rs. 100 million might now be registered in the STR, and we would also take collateral in the form of land and buildings, if available. In trade finance-related loans, goods in stock often serve as collateral; when the commodity is sold, the loan is settled. If the commodity remains unsold, banks face issues if there’s no additional collateral, as the value of the commodity gradually deteriorates. We are gradually recognising the STR for fast-moving trading goods. However, for long-term, small-scale projects, we still require collateral from a risk management and security standpoint.
Q: Given the current pause in the long-debated government discussion regarding a strategic partner for the ADBL, do you believe a strategic partner is necessary, perhaps by operating ADBL as a joint venture with a foreign bank?
A: I do not believe there is a need for an equity partner or a business partner. We are not currently required to raise capital. If any partner wishes to collaborate, it should be to enhance cost efficiency via a Technical Service Agreement (TSA), specifically, to streamline our IT/digital banking and processing mechanisms at the lowest possible cost. I see no utility in a non-business partnership that would incur extra costs. While our name is Agricultural Development Bank Ltd., we operate as a full-fledged commercial bank (Class ‘A’ under BAFIA 2004). We have functions similar to other commercial banks, but we are distinct due to our expertise and specialisation in agricultural lending.
From an equity perspective, our Capital Adequacy Ratio (CAR) is 13%, which signifies we have the capital strength to lend up to Rs. 150 billion. In 2009, the Asian Development Bank (ADB) provided grant support to procure our Core Banking System (CBS) for automation, along with technical assistance, including consultants, for four to five years. Our current need is to deliver services through a digital financing mode. We already have a Kisan app, Kisan card, the Krishi Gyan Kendra app, and some merchant activities can be done through the Kisan app. To address the remaining gap, we are initiating a relationship manager model, clustering 200-300 farmers into one cohort. We are also actively seeking technical support in these areas.
Q: You’ve completed over half of your tenure. What are your key remaining targets?
A: Immediately after assuming office, I focused on some quick fixes and we achieved results from those early efforts. Following that, we have emphasised long-term structural changes within the credit and other departments. These long-term changes have yet to be fully translated into practice and habit. Furthermore, the results yielded by the quick fixes must be made sustainable, essentially converting them into permanent solutions. We still need to address some structural, policy, and guideline fixes, along with newly emerged and unforeseen challenges. My priority is to make these fixes sustainable and develop them into an institutional culture.
This process is gradually developing; the results we’ve achieved represent the halfway point of the initiatives we started. The culture we are cultivating, focused on ethics, transparency, governance, and customer service, will lead to effective and efficient service for customers and all stakeholders. Establishing this organisational culture takes a timeframe of five to ten years. Our motto is to establish ADBL as the ethical, transparent, well-governed (in terms of governance and compliance), and best bank for customers. We are committed to providing the best service to all our stakeholders: promoters, investors/shareholders, customers, employees, regulators, the government, and society as a whole. Creating this cultural identity is my long-term priority, and we are just at the beginning of this process. Over the last two-and-a-half years, we have been very well on track. I am hopeful that with the support of our highly committed team members (2,500 banking staff and 3,400 staff including non-banking staff), we will achieve our targets.
We are determined in our motto: ‘Let’s not abandon agriculture, let’s connect/add others” and “Let’s not abandon small size clients and connect big size customers.” Out of our 149,000 borrowers, 146,000 customers are availing small-ticket-size loans below Rs. 2 million, which demonstrates that we serve a large number of small borrowers. When analysing per rupee of risk assets versus profitability, we rank among the top one or two in terms of asset size and risk portfolio. Sustaining this position is a challenge but we are committed and working hard on this front. I am confident that we can achieve it.
