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Deepak Malhotra is the Chairman of IMS Group, a business group with diversified interests in various sectors including technology, e-commerce, automobile, real estate, healthcare, and financial services, among others. Malhotra is also the President of the Mobile Phone Importers Association as well as Vice President of the Nepal Chamber of Commerce. ApEx caught up with Malhotra to talk about the current economic slowdown, the impacts of higher interest rates on business operations and problems surrounding the business sector. Excerpts: Many businesspersons say that the current economic slowdown is the deepest in their living memory. How severe is the crisis for the private sector? The policies of the government and the central bank created the current crisis. The exorbitantly high borrowing rates, unnecessary tightening of working capital loans and the credit-to-deposit (CD) ratio of banks, among others, have impacted businesses very much. The current borrowing rates have made doing business unsustainable. We are facing double problems; there is a sharp decline in market demand for goods and services, whereas BFIs have been pressurizing us to pay the loans and interests. We have repeatedly urged the Ministry of Finance and the Nepal Rastra Bank to bail out the crisis-hit businesses. But, they have turned a deaf ear to our demands. While many businessmen complain of BFIs charging high-interest rates, the same individuals are also the promoters of many banks. In this situation, is it fair for them to complain against the policies of banks and the central bank?  This is a valid issue. There are businesspersons on the board of many banks. Ideally, there should have been a separation of bankers and businessmen in the banking system. Banks have not reduced the premium on interest rates despite repeated requests from private sector organizations. The influential businessmen who should have been vocal against the interest rates issue have chosen to remain silent during this crisis. I think it is because their personal interests are playing a role in this context. My point is, business community members need to raise a united voice. As the President of the Mobile Phones Importers' Association, how do you see the policies of the government affecting the mobile handset business? As the official importer of Samsung mobile phones, IMS used to import mobile phones worth Rs 10 billion annually. Until four years back, mobile importers used to get a 40 percent VAT rebate on the import of handsets. This has made mobile phones cheaper in the market as well as helped to check illegal imports. The abolishment of the VAT rebate in the federal budget of FY2019/20 has already hit our business. In addition, the government also imposed excise duty on handset imports. Making the matter worse, the government enforced import restrictions on mobiles above $300 from April this year. The sudden imposition of import restrictions has hit mobile businesses very hard. While we were left with no mobile phones to sell, we were not in a position to reduce our expenses. Mobile importers and dealers operate on a relatively thin sales margin; there is only a five percent gross profit in the mobile business. People may not believe it but the mobile phone business has now turned into a loss-making venture. The ineffective implementation of the management device management system (MDMS) as well as a surge in illegal imports also posed serious issues to the domestic mobile phone business. What do you think are the factors hindering the effective implementation of MDMS?  We have been regularly asking the authorities to implement the MDMS effectively. The problem came when there was a discussion about identifying the legality of mobile phones. Neither mobile phone importers nor the government had any issue with the Nepalis working abroad bringing phones for their personal use. But the issue here is, a few traders have been using migrant workers to import mobile phones illegally. It is estimated that around 100,000 such illegal phones have already arrived in the Nepali market. Once the Nepal Telecommunication Authority (NTA) implements the MDMS system effectively, such phones will not be activated. What do you suggest for Nepalis who buy phones abroad to use them in Nepal? People should not buy mobile phones in foreign markets to use such handsets here. It is because genuine mobile phones can be brought from the Nepali market at affordable prices. Customers will also get an official warranty/guarantee and a few high-end handset models available in the market even come with insurance coverages. As the government has recently lifted the ban on mobile phone imports, when Nepali market see new models of Samsung phones? With the lifting of import restrictions, we have started the process of opening a Letter of Credit (LC). IMS will introduce flagship models of Samsung mobile in the Nepali market in months or two. We have not been able to launch the Samsung Galaxy Z Fold 4 in the market due to import restrictions. Along with Fold 4, the Galaxy S22 series phones will also be reintroduced to the market. How much time do you think it will take for the Nepali mobile phone business to rebound? Not only mobile phones, but the market of every product/sector has weakened over the last couple of months. With the lifting of import restrictions, we will now start importing mobile phones. But, we are not sure whether there will be buyers. If the government works to improve the business environment and resolve all our problems, then only the mobile phone market can bounce back.

Despite some improvement in Mangshir, the liquidity situation in the banking sector is expected to remain tighter until around mid-January. While the deposits of commercial banks surged by Rs 58 billion in Mangshir (mid-November to mid-December), lending has remained sluggish as banks disbursed only Rs 2 billion in loans last month. Bankers and economists attribute multiple reasons for this situation. A large number of taxpayers will pay taxes by withdrawing money from the banks as the government gets the first installment of income taxes in mid-January in line with the Income Tax Act. With the government running in a fiscal deficit with revenue insufficient even to meet the recurrent expenditure, it is expected to continue the internal borrowing which will mount further pressure on liquidity. The banks are also required to repay the refinance to the Nepal Rastra Bank (NRB). The outstanding amount of refinancing provided by NRB remained at Rs 102.60 billion in mid-November 2022, according to the central bank. The provision under which the banks can count 80 percent of reserves funds of the local government as deposits, is also expiring in mid-January. “Over Rs 40 billion is expected to go out from the banking system to pay the tax to the government,” said Sunil KC, CEO of NMB Bank, adding that the government is expected to absorb an additional Rs 30 billion through internal borrowing. When the financial resources go into the government treasury, it takes time to bring those resources from the government treasury. “It is because the government is weak at spending, particularly the capital budget,” said another banker. "Our only hope is that government spending may accelerate relatively because its existing revenue collection has not been able to make up recurrent expenditure too. If not for capital expenditure, money to be observed by the government can come up to spend for administrative works.” The banking system has faced a prolonged liquidity crunch, particularly from the second quarter of the last fiscal year, due to massive lending for imports in the early months of the last fiscal year. Due to a mismatch between lending and deposit collection, the banking system faced a shortage of loanable funds. With deposits not growing as expected, the system faced a prolonged liquidity crunch. However, a senior Nepal Rastra Bank official said the liquidity crunch has eased to some extent as deposits surged since mid-October while lending grew only marginally. Since mid-Oct, deposits in the banking system grew by around Rs 80 billion while lending grew by just around Rs 2.5 billion till mid-December, according to NRB. A senior NRB official said that this has helped to reduce the credit-to-deposit ratio of commercial banks to around 86 percent down from over 90 percent in the early days of the current fiscal. One contributing factor for improved deposits is also that commercial banks could count 80 percent of the reserve funds of the local governments as deposits. Likewise, inflows of remittances have increased in recent months along with the rise in the outflow of Nepali migrant workers contributing to deposit growth. Remittance inflows increased 20.4 percent to Rs 378.04 billion in the first four months of the current fiscal year against a decrease of 7.0 percent in the same period of the previous year, according to NRB. In January this year, the central bank allowed the commercial banks to count 80 percent of reserves funds of the local government as deposits, up from 50 percent earlier. Though the provision was first arranged till the end of the last fiscal year, it was extended till mid-January considering the continued liquidity crunch in the banking system. Amid the scenario of the tighter liquidity situation, the banks are unlikely to lend to the private sector borrowers in significant amounts even though the government lifted import restrictions on vehicles, liquors, and expensive mobile sets in mid-December. According to a banker, the ongoing liquidity crunch and high borrowing rates will discourage imports despite the lifting of import restrictions. “Because of high inflation and interest rates, demand in the market has slumped,” said the official.

The Nepal Stock Exchange (NEPSE) gained 14. 22 points to close at 1, 873. 11 points on Tuesday. Similarly, the sensitive index plunged by 2.68 points to close at 366. 65 points. Meanwhile, a total of 3,022,052 unit shares of 257 companies were traded for Rs 93 billion. Meanwhile, Adhikhola Laghubitta Bittiya Sanstha Limited and Srijhansil Laghubitta Bittiya Sanstha Limited were the top gainers today, with their price surging by 10. 00 percent. Sunrise Bluechip Fund was the top loser as its price fell by 4.67 percent. At the end of the day, total market capitalization stood at Rs 2. 70 trillion.

The price of gold has dropped by Rs 100 per tola in the domestic market on Tuesday. According to the Federation of Nepal Gold and Silver Dealers’ Association, the yellow bullion is being traded at Rs 100, 400 per tola today. It was traded at Rs 100, 500 per tola on Monday. Meanwhile, tejabi gold is being traded at Rs 99, 900 per tola today. Similarly, the price of silver has dropped by Rs 5 and is being traded at Rs 1, 375 per tola.