Citizen Investment Trust (CIT) is one of the efficient financial institutions of the country. Offering financial service to people ranging from civil servants to general people, it has lately expanded its investment in many sectors. It has advanced its activities for the stock market expansion through its Citizen Stock Dealer.
Rastriya Samachar Samiti's Ramesh Lamsal recently talked with the CIT executive director Raman Nepal about its latest activities and future strategies. Excerpts:
Q. It has been around five years since you was appointed the CIT chief. You are currently in the final phase of your tenure. How do you think you have performed in the meantime?
A. In the meantime, a well-equipped building for the CIT has been constructed. We are generating incomes by renting three floors of the building. We were weak in information technology. Now, we have brought into operation the NLK Web-Based Software, which has helped in providing service to people from Taplejung in the east to Darchula in the west in a feasible way. We will gradually add other services too. We have increased paid-up capital of the CIT from Rs 900 million to Rs 5.2 billion as of now. We adopted various methods to increase the paid-up capital like allocating right shares to its shareholders.
When I assumed office, the deposits were Rs 111 billion. Now, they increased to Rs 220 billion. Deposit saving rate is also good. In the beginning, deposits from only government employees and employees of organisations were accepted. The citizen pension scheme has been now proceeded with the aim of connecting general people with the CIT. Under the pension programme, be they anyone ranging from the self-employed people who can save from their earnings in their youth and take pension from the money they have earned in their old age if they are accommodated under the scheme. The Citizen Investment Trust Act has clearly mentioned its role in the expansion and development of the capital market of Nepal. The CIT had worked only as a share sales manager and a guarantor. But for providing some stability to the capital market, we have now initiated work by establishing a company called the Citizen Stock Dealer with a paid-up capital of Rs 5 billion. When I assumed office, the CIT could not organise its annual general meeting and its audit could not be carried out for the past three years due to various internal reasons. We are now regularly doing these things. Additional five branch offices have opened.
Q. Currently, the Employees Provident Fund (EPF), the Citizen Investment Trust and the Social Security Fund (SSF), all of them with a similar nature, are into operation independently. Is there lies any possibility of merging all three institutions to establish a single, but a more robust entity?
A. It risks being born a monopoly institution by integrating all of them this way. There will not be competition in service delivery. I think service seekers should avail services in a competitive way. The EPF is cent percent government funded institution. The SSF is of the similar nature. The CIT has three types of investors. It has 23 percent investment of the Government of Nepal and bank and financial institutions (BFIs) hold 15.11 percent shares. Similarly, the EPF has held 31 percent shares, the Nepal Stock Exchange 10 percent, and general public 20 percent. This is the public private partnership (PPP) model institution. It is co-owned by the government, public corporation, BFIs and general people. If the three institutions are merged, a question may arise as to how to manage all these sectors. I think these types of institution are needed and they must be. This is a type of voluntary saving institution. It is an institution that runs on a trusty model.
Q. There have been concerns raised about the Citizen Investment Trust's (CIT) ability to attract the general public due to its lower returns. Is this claim valid?
A. Earlier, service seekers could not get additional returns. Each has different financial details. It requires to make eight/nine details of different nature. We strive to provide additional returns each year taking into account profits of each. Except interests, there add additional returns. Last year, we yielded 1.5 percent returns and we did the same this year too. It means investors get more interest rates from their deposits from the CIT than from the market. We have an annual deposition scheme. It is not like a fixed deposit. Moreover, we have given eight percent interests or returns. We are working at a spread rate equal to 1.14 percent, which is very low. The spread rate set by the Nepal Rastra Bank for the BFIs is 4.43 percent. We are aware about ensuring as much as participations, and providing much returns on investments.
Q. There have been complaints that the CIT failed to come up with new programmes in substantial quantities, and increase the number of participants as well. What is your perspective on this matter?
A. There are much expectation from any sectors and areas. The CIT may have some obligations. When it comes to human resources, we have to induct all employees through the Public Service Commission. We are working with limited human resources. In the context when its annual general meeting could not take place regularly and audit was not carried out accordingly, it requires to regularise these tasks.
Information technology was not properly used. We had to manage it. We have to get a success in bringing new programmes. So, we have reached a conclusion of bringing new programmes. We have to launch an asset management company and link Nepali migrant workers, through which remittances could inflow through a formal channel. This would flow positive energy.
Q. It's been believed that that if organizations like the CIT had taken proactive measures, the market interest rates could have gradually decreased. How accurate is this observation?
A. We have some limitations. We need to provide many participation facilities. We cannot accommodate many. We cannot openly run saving and loan programmes like BFIs. We cannot float loans like the private sector. We have given loans to depositors as housing loan, education loan, easy loan, and real estate loan based on collateral at low interest rates than BFIs. It is not within our scope of providing loans to everyone in general.
Q. You have kept a large chunk of the CIT shares in a fixed deposit and are earning interests. In view of this, do you not have any responsibilities?
A. When I joined the office, 65 percent of the total portfolios had been kept in a fixed deposit. The figure has been gradually dropped to 50 percent now. Based on the mobilisation of the total resources, we have increased loans to participants. Secondly, based on the government’s emphasis of developing the capital market, we invested in some tools of the market. We did many things ranging from establishing a stock dealer to investing in bonds, investing in promoter shares of BFIs and purchasing company shares from the secondary market. We are mindful about the risks of the deposits of depositors by putting all investments in a single sector. So, we have diversified our portfolios. We have been insisting that we should provide facilities to the participants with the money taken as returns on the investments in other sectors instead of returns from the fixed deposit. So, we are gradually diversifying investments in other sectors.
Q. There have been complaints that the Citizen Stock Dealer could not meet its goals. What is your say about this?
A. As per the government’s financial sector development strategy, we established the Citizen Stock Dealer with the purpose of managing the stock market if it may be a bit. When we established the institution, we had aimed to invest by setting up a big basket fund. We have the mindset that no one else should trade shares in the stock market when the NEPSE index is rising. Investors think that they alone should keep as much as profits they can. This is the human nature. But when the market falls and we face a loss, voices will be raised asking for a sector to protect them.
One should enter the market with the mindset that there involve risks in investments. We have such a situation that when one starts taking profits from the market, they keep quite. But when they start suffering a loss, only then they start speaking up.
The stock dealer is working its way. We are working to create a situation wherein the market should not swell when the NEPSE index goes up and vice-versa. We have moved ahead by setting up a basket fund. There is not a situation that we have high interference in the market when we are just two years old. Its capacity is not enough either. This is a first dealer. So, it is gradually expanding.
Q. The CIT is working also as the share guarantor. But last time, it received a lot of criticism over shares of a cement company. How do you take it?
A. The Securities Board of Nepal has provisioned a guarantor in its rules. We are charging some fees accordingly. The Board has provisioned of charging fees equal to four percent. This is applied in only a large quantity. We also analyse the company’s financial and other indicators. We analyse the company and look at the condition of other shares in the market. We took up the responsibility as a share guarantor for the Ghorahi cement before the Nepali months of last Asar. At that time, share price of Shivam Cement was around Rs 900 per share. In a situation when we determined underwriting, and the Board took a decision to go ahead, the proposal came to us with a price of Rs 435 per share. We had expected that we would not suffer a loss if the price has been set. Seeing all these details, we did the underwriting thinking that we would not suffer a loss. Various groups made it an issue. When the Board granted a permission to sell shares, there was not a climate conducive for selling shares due to various reasons.
The Board picked a dispute saying the underwriter and the rating company did not work effectively. When the market situation changed, it risked worsening the condition. We are completely responsible for what we did. We would accept all leftover shares of the company had them not been sold in the market. We had accepted shares of this company with the aim of promoting an industry from the production sector. This issue got much exposure due to unhealthy competition among various businesspersons. Eventually, the disputes surrounding the issue disappeared.
Q. Are there any other incidents where the CIT has been in trouble in guaranteeing shares?
A. We had to purchases some shares. But we got profits from it instead of facing a problem. We did guarantee shares of the bonds of various banks. We accepted bonds with higher interest rate than the market fixed deposits. Bank interest rates have decreased to eight percent. Interest rates of our accepted bonds are above 10 percent. The institution has earned an annual income of more than Rs 250 million. It has earned profits in bonds of Sanima and Prime Commercial Banks.
Q. The CIT had also invested in the purchase of aircrafts of the Nepal Airlines Corporation. Is the Corporation regularly paying off the loan?
A. The Nepal Airlines Corporation has not paid off principle and interest. It has purchased one of the wide body aircrafts it has with loans from us. A decision on the matter was taken before I joined the office. The Company could not earn profits during the COVID-19.
A situation has been created where it is gradually earning profits from aircrafts following the end of the impacts of the virus. It is gradually paying off the loan. We had invested Rs 12 billion. The loan has increased to Rs 16 billion as of 16 July, 2023. It paid only Rs 250 million until that period. It could not pay the loan the way we had expected. We have the hope that we could get the loan recovered from the government, which is a guarantor in the case, in case of the Corporation failing to pay. We cannot even think about pouring additional investment until the loan installment from the Corporation is regular. It is considered defaulter until there is one rupee left to pay.
In this situation, the Corporation has said it would purchase aircrafts from its own resources. How far this is possible, time and the institution will tell. As the Corporation is yet to pay the loan installment regularly, we are now urging the Corporation, the Ministry of Culture, Tourism and Civil Aviation and the Ministry of Finance to pay the installment. But we cannot issue loan to defaulters despite pressure of any amounts.
Q. What more new program do you think the CIT should bring in the days to come?
A. In my opinion, the CIT should continuously refine the existing work. The scope of the citizen pension scheme can be expanded. Instead of bringing additional programs, it is better for it to mobilize resources in their full capacity, and utilize them by investing in the infrastructure sector. We must establish an asset management company.
Q. Has the CIT received any proposal for investing in some other big projects following a successful investment in the Upper Tamakoshi Project?
A. We have got a positive proposal. Water resources are the foundation for prosperity. Things should be done on time. We must develop the energy sector without exceeding time and costs. It has got a delay in investing in the hydropower sector. The government should also put a special focus on electricity export. We are participating in it. We will not directly involve in production. We will only invest. We are ready to invest in other projects.
Q. The depositors should pay tax equal to 15 percent. There are complaints from the service seekers that the burden of tax have been imposed on them. What do you say?
A. We all must be clear on it. We have many plans. Of them, tax is not imposed on employee saving growth. The government has given tax exemptions up to Rs 300,000. Not a single rupee is taxed on first up to Rs 500,000. Five percent tax is imposed on the second Rs 500,000. When the deposits exceed Rs 1 million, five percent tax is imposed on 50 percent of the amount, which means deposit is made by deducting the amounts equal to employees' salaries. This is the money deposited by service seekers in the concerned institution without paying tax. On the other hand, tax is not paid.
Fifteen percent tax is imposed on the money coming in without paying tax, and on the gratitude but not in all conditions. Only five percent tax was levied until the Nepali month of Asar, 2075 BS (June-July, 2018). Thereafter, tax is imposed in accordance with succeeding budget. We have implemented the Income Tax Act.
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