2 March, 2010 – Punjab National bank has offered a loan of Nu 15 bn to Druk Holding Investment (DHI) for its investment plans. The offer was made in mid February 2010 by the Druk-PNB bank CEO, N K Arora, on behalf of PNB bank in India.
The CEO told Kuensel that PNB would also have no reservations on giving loans for mega hydro projects and other big projects, including those from the private sector on a case-by-case basis.
“I’ve been given to understand from my colleagues in India that since Druk-PNB is a subsidiary of PNB bank, it’ll be easier under the Reserve Bank of India guidelines to loan money from PNB India to Bhutanese companies,” said N K Arora. He said that he had sought more details on the RBI guidelines from the parent bank.
“Whatever project is financed by PNB, the money can be routed through us and also get recovery through us,” he added. “DHI owned projects and other big projects in Bhutan require billions in investment, which can’t be fulfilled by local financial institutions.”
The total amount that can be loaned by all of Bhutan’s financial institutions combined, which is BOB, BNB, Druk-PNB (Bhutan), NPPF, RICBL and BDFC, is currently around Nu 7 to 8 bn.
DHI CEO Karma Yonten said, “What has been made so far is a verbal offer, we’ll have to get something in writing, which would include what types of terms and conditions are there and if they have the capacity to come up with such money.”
Arora said that PNB bank, India, is worth around Nu 200 bn and the Nu 15 bn loan offer was a small component. “PNB can fund from its own source and, if they want, then PNB can rope in other Indian banks also,” he said.
“If the project is government owned, then we usually don’t ask for any collateral,” he said, in response to a question on what kind of collateral PNB would be looking at.
A PNB official, on conditions of anonymity, said that originally PNB had planned a 30 percent equity in Druk-PNB, but later increased it to 51 percent, as this would facilitate borrowing from India to big projects in Bhutan.
N K Arora, however, clarified that Druk-PNB’s prime function was to operate as a local bank under the guidelines of the royal monetary authority and that Druk-PNB could play the role of only a facilitator for such big loans. He said that, if DHI required the money, then it would be up to DHI to approach the government to get permission for taking such a loan from outside Bhutan.
Observers say that such PNB loans can only be allowed under ‘external commercial borrowing,’ on which the government is yet to take a decision on the RMA recommendations. RMA has recommended a cap of USD 5 mn for each company and no government guarantee be given for any such borrowings.
However, the cabinet recently allowed Dungsam cement project to raise 2 billion rupees money from Indian banks at 10 to 12 percent.
“Druk-PNB is a licensed Bhutanese bank, which has to follow RMA rules and guidelines and the bank by itself can only give a maximum of Nu 90 mn loan to a company at a time,” said RMA MD Daw Tenzin.
RMA’s financial institutions supervisory division head Eden Dema clarified that external commercial borrowings are currently not allowed under RMA guidelines.
Daw Tenzin said the international practice for companies wanting to raise money would be to first float IPOs or list on the stock market, by divesting some of their shares, and then borrow to meet shortfalls.
He said that Bhutan already has a high debt to GDP ratio at 70 percent including a rupee credit of Rs 22 bn and any commercial loans taken must be viable.
On the impact of such a move on Bhutan’s financial sector, the BNB’s CEO Kipchu Tshering said, “Bhutanese banks would be missing an opportunity to finance or give part of the loans.”
NPPF director Dubthob Wangchuk said, “It’ll definitely affect interest rates, there will be more competition and it’ll bring about more efficiency in the financial system.”
By Tenzin Lamsang
