Significant Challenges For Sustainable Banking

Madan Shrestha

Maintaining customer trust and confidence is a vital component as well as a very complex task in the banking sector. There is a controversial challenge in front of the banking sector.

If the bank is not able to earn a handsome profit there is no trust of customers & people. People dislike those banks whose banks do not have sound profits. To be a prominent bank, the bank makes a great effort and contribution. If the bank is able to survive as a prominent bank, the bank should earn more profit comparatively to a past year’s profit.

When the position of the bank is in profit then the customer and entire people start to say the bank exploits us by holding high interest and other various fees and penalties. The bank deceives us. The customer’s slogan has negative aspects of the bank’s performance. They think that the vision, mission, and objectives of the banks are just to show the people. It is the slogan that is just to attract people.

At present some groups are campaigning against the bank activities basically microfinance and cooperatives. They are not ready to pay the interest of the loan not only the interest they are demanding the whole amount of the loan is not to pay.

Such type of customers knows how the bank provides loan to their customers. They know the source of the loan that is provided to their customers by the bank.  The source of the loan is the deposit by the customers. The profit is the difference between the interest on the deposit and the interest on the loan. This different rate is called the spread rate.

The spread rate is the margin of the bank. To acquire profit for the bank is a great task.  It is not easy to get profit for the bank. It is easy to say but achieving is very difficult. To get profit for the bank, they have to make great efforts. There is the top competition in the banking market. So many obligations, rules, and regulations should be followed by the bank that was issued by the Nepal Rastra Bank.

Nepal Rastra Bank directs commercial banks, development banks, finance, and microfinance. If the bank does not follow the rules and regulations bank can not operate its entire functions. It is a mandatory task for the bank. Operating the banking service is not easy.

Performing in the bank is the most challenging and difficult. The banking sector is the most sensitive sector in comparison to other sectors. Bank is not fully autonomous institutions.

So many barriers that the bank should tackle. There is no profit to run the bank in the remote area but also the bank should expand its branch because the bank should meet its obligation according to the government’s national policy.

It is mandatory for the bank to provide banking services in rural areas being on loss.  The cost of funds will get high when launching banking services in remote areas.  Banks should divert deposits from urban areas to remote villages with high costs.

This task is very sensitive and risky for the bank.  This can make it risky to operate and secure the physical bank branch. In such a location there are great challenges in managing these services. In remote areas,  due to the lower level of financial literacy thus greatly difficult to maintain banking services.  It is very tough to get the potential customers in rural areas.

Banks are facing various hurdles to maintaining banking services.  Particularly in rural areas significant hinder in banking operations. There is no facilitation & and infrastructure functioning for banking service especially in remote areas.

People who are in remote villages are suffering from daily hand-to-mouth problems. In such remote areas, economic activities can not expand due to the lack of proper roads, transportation networks, communication infrastructures, and illiterate people.  In such a place there are no sectors in which they get income.

They are beyond income-generating any type of business. Most people are skillless.  Thus without the skill to generate income and maintain a livelihood is very hard. In such remote areas, the bank should launch literacy programs, income-generating programs, and skill base programs along with banking services.

Due to the lack of clear guidelines and incentives from regulators, banks can not function with their business uniqueness.  A recent bank supervision report by the Nepal Rastra Bank has shown various challenges distressing the banking sectors.

Among the bank’s activities no uniqueness of their role. There is a huge gap and variation in their disclosed pictures.

S.N Name of the Bank Paid-up capital Profit 2079/80 in Arab
1 Global IME Bank 35.77 7.25
2 Nepal Investment Mega Bank 34.13 4.29
3 Nabil Bank 27.06 7.52
4 Kumari Bank 26.23 1.95
5 Prabhu Bank 23.54 2.82
6 Laxmi Sunrise Bank 21.67 2.26
7 Himalayan Bank 21.66 3.26
8 Prime Commercial Bank 19.4 2.26
9 Agriculture Development Bank 18.88 3.10
10 NMB Bank 18.37 3.41
11 Nepal Bank 14.69 3.41
12 Rastriya Banijya Bank 14.64 4.91
13 Citizens Bank International 14.2 2.21
14 Siddhartha Bank 14.09 3.19
15 Sanima Bank 12.46 2.61
16 NIC Asia Bank 11.56 4.65
17 Everest Bank 10.7 3.39
18 Machhapuchhre Bank 10.26 1.85
19 Nepal SBI Bank 10.13 2.24
20 Standard Chartered Bank 9.43 3.52

Above table disclose that the paidup capital of Global IME Bank is highest but the Nabil Bank  is able to earns the highest profit comparatively to others bank.

There ia complex & diversity pictures in each & every banks.  A short findings & reaserch gets  that  to be a sustanable bank is significant challenges .



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