"Opportunities Lie in Digital Services and Consolidation"

Mahalaxmi Bikash Bank is navigating the country’s development banking landscape with a mix of innovation, discipline, and resilience under CEO Dipesh Lamsal’s leadership. A veteran with 28 years in the banking sector, Lamsal has led the bank through mergers, regulatory changes, and industrywide stress, while strengthening risk management, improving operational efficiency, and pushing digital transformation. In an interview with New Business Age, Lamsal discusses the forces reshaping development banks, the reasons behind declining profits, and how Mahalaxmi is positioning itself to thrive. Excerpts:

Q: Over your 28-year career in the banking sector, how has your leadership philosophy evolved, and how has it guided Mahalaxmi Bikash Bank’s transformation, especially during periods of sector-wide stress?

A: My leadership philosophy has gradually changed from process management to building strong, empowered teams that can adapt quickly. Today, effective leadership is about anticipating risks early, enabling faster decisions, and creating a culture where people take ownership. This approach has helped Mahalaxmi Bikash Bank navigate through tougher regulations, liquidity swings, and sector-wide pressure. By strengthening internal controls, investing in digital systems, and promoting disciplined execution, we have been able to manage stress periods with clarity and confidence.

Q: Mahalaxmi Bikash Bank has completed several mergers. What were the biggest operational and cultural challenges, and what can other development banks learn from your experience?

A: We learned that integrating technology and processes is the easy part; aligning people and culture is far more complex. Each institution brings its own history, expectations, and work habits. The key lessons are clear: plan early, communicate openly, and put culture and customers first. When employees understand the vision, purpose, and benefits of coming together, operational integration becomes much smoother. For development banks, investing in cultural alignment is just as important as syncing systems.

Q: National-level development banks reported a 52.35% drop in net profit this quarter. What are the main reasons behind this decline, and how do these pressures compare with what Mahalaxmi is experiencing?

A: The sector’s profit decline stems from a combination of asset-quality stress, margin compression, and subdued demand, though the most significant factor has been the rise in non-performing loans (NPLs) and the consequent surge in provisioning requirements. At the same time, economic uncertainty has prompted businesses to postpone investments which has slowed credit growth. Liquidity pressures have also played a role. Some banks have excess liquidity, but maintaining it comes at cost which squeezes interest margins and limits net interest income. At the same time, deteriorating asset quality has forced banks to increase provisioning for loan losses which have further eroded profitability. Development banks, in particular, face relatively high base rates, and tighter economic conditions have put downward pressure on lending rates, constraining net interest income. Regulatory and macroeconomic headwinds—including stricter provisioning requirements, expected credit loss (ECL) frameworks, and loan restructuring norms—have further compounded the sector’s challenges.

While Mahalaxmi faces the same sector-wide pressures from rising NPLs, our conservative lending practices and strong risk management framework—strengthened further by recent mergers—have provided a robust provisioning buffer. Disciplined credit underwriting has allowed us to avoid the riskiest segments and maintain portfolio quality. Liquidity management is another area where we stand out. Amid sector-wide pressure, we have balanced deposits and borrowings to stabilize interest margins. Our Current Account and Saving Account (CASA) ratio exceeds 60%, with savings deposits above 50%, and our CD ratio hovers around 83–84%, reflecting a stable and low-cost funding base. Mahalaxmi’s capital position remains strong, allowing us to absorb shocks while pursuing selective growth. Strategically, we focus on quality lending and fee-based services rather than volume, focusing on building resilient and high-quality portfolios.

Q: What key lessons can development banks and the wider financial sector draw from the first quarter results?

A: The first quarter results underscore several critical lessons for development banks and the broader financial sector. First is the importance of proactive risk management. Banks that emphasize strong credit underwriting and continuously monitor asset quality are better positioned to prevent emerging problems from escalating into significant losses. Reliance on interest income alone leaves institutions vulnerable to margin compression and credit-cycle volatility, highlighting the need to diversify income streams. Expanding non-interest sources, including fees, advisory services, and treasury operations, can help stabilize earnings and strengthen profitability over time.

A stable, low-cost deposit base, particularly one with strong CASA mobilization, allows banks to manage funding risks and maintain flexibility during periods of stress. Finally, disciplined engagement with regulatory tools, including restructuring facilities, provisioning norms, and other policy measures, can support both stability and sustainable growth when integrated into a sound risk strategy that balances customer support with financial prudence.

Q: Which asset-quality or liquidity indicators—such as rising NPLs, shrinking spreads, or higher provisioning—do you believe contributed most to this profitability slump?

A: The most significant contributor to the profitability slump across development banks was the rise in non-performing loans and the corresponding increase in loan-loss provisioning. Asset-quality deterioration accelerated, particularly in SME, trading, and real estate-linked exposures. As NPL ratios climbed, banks were compelled to set aside larger provisions which directly reduced net profits. Even small increases in NPLs—between 0.5% and 1%—triggered disproportionately higher provisioning under Nepal Rastra Bank norms. This factor alone was the primary driver behind the sector-wide drop of over 50% in aggregated net profit, often overshadowing gains from operating income. Quarter-on-quarter spikes in watchlist and IRR-downgraded accounts added further pressure.

Compressed net interest margins (NIM) were another major factor. Excess liquidity and competitive deposit restructuring pushed banks to invest more in low-yield assets such as treasury bills and government bonds. Base-rate rigidity and declining CD ratios further narrowed spreads, while weak borrower appetite kept lending rates under pressure. As a result, even banks with relatively stable portfolios saw their interest income fall. Weak credit growth also played its part. With private-sector demand weak and banks cautious, interest income stagnated, and surplus liquidity was held in low-yielding instruments, which affected overall earnings.

Q: How is your bank adjusting its lending strategy, liquidity management, and cost structure to protect profitability?

A: We have adopted a disciplined approach across lending, liquidity, and costs, focusing on quality over volume, liquidity strength, and operational efficiency. On lending, we are prioritizing lower-risk, shorter-tenor exposures, emphasizing fully collateralized retail products, micro and SME borrowers with strong cash flows, and short-term working capital facilities. We have tightened underwriting, strengthened early-warning systems, and increased the frequency of portfolio reviews. Recovery and collection teams have been reinforced, particularly for higher-risk segments, allowing the bank to manage growth carefully while protecting capital adequacy and maintaining provisioning buffers.

Our liquidity strategy centers on keeping funding costs low through disciplined deposit pricing and strong CASA mobilization. Excess liquidity is deployed in secure government securities, selective interbank placements, and low-risk lending. We are also maintaining strong liquidity buffers ahead of regulatory cycles. On costs, we are improving operational efficiency through branch rationalization, optimized vendor and technology contracts, and greater use of automation to reduce manual work and improve turnaround times. Post-merger integration has enabled streamline processes, shared services, and staff optimization thereby enhancing scale and efficiency.

Q: What are the top risk management strategies that Mahalaxmi Bikash Bank employs to maintain stability while pursuing growth?

A: In today’s dynamic financial environment, characterized by liquidity fluctuations, evolving customer needs, and heightened regulatory expectations, Mahalaxmi Bikash Bank has built a risk management framework that balances stability with sustainable growth. Central to this approach is strengthened credit governance. The bank has modernized cash-flow assessments, collateral evaluation, and borrower behavior analysis, while early-warning indicators and frequent portfolio stress tests identify emerging vulnerabilities. Post-disbursement monitoring and dedicated recovery teams focus on high-risk and restructured accounts, helping reduce credit slippage and maintain predictable asset quality.

Conservative provisioning and capital protection are also key. By maintaining buffers above regulatory requirements and ensuring capital adequacy exceeds NRB guidelines, the bank safeguards its balance sheet against shocks. Strategic writebacks and disciplined recoveries allow efficient recycling of capital while enhancing shock absorption capacity. Similarly, liquidity and interest-rate risks are actively managed through diversified funding, CASA growth, and calibrated deposit pricing, enabling low-cost funding and efficient deployment of liquid assets into government securities, interbank placements, and selective lending. The Asset-Liability Committee (ALCO) continuously monitors repricing gaps to protect NIM and maintain flexibility.

Q: How is Mahalaxmi Bikash Bank shaping its digital banking strategy as cashless services gain prominence in Nepal?

A: As Nepal moves toward a cash-lite economy, Mahalaxmi Bikash Bank has developed a digital strategy focused on accessibility, security, and seamless customer experiences, supported by strong ecosystem partnerships. We are building a unified digital platform across mobile and web channels, streamlining onboarding through simplified KYC and digital-first workflows, and digitizing core banking services such as payments, deposits, loans and customer support. Advanced security layers, including behavioral analytics and device intelligence, help ensure trust while keeping the user experience simple and intuitive. Automation and data intelligence are central to this approach. Automated loan processing for small-ticket retail and MSME loans has reduced turnaround times, while data-driven credit scoring has strengthened risk discipline and cut operational costs. More back-office workflows are now automated, reducing errors and lowering operational risk. As digital payments and cashless services grow rapidly, we are expanding QR and e-commerce acceptance, providing API-based merchant solutions for SMEs, and offering value-added services such as utility payments, remittances, and cardless withdrawals. Cash-lite operations and QR-enabled branches simplify transactions, making them faster, safer, and more convenient for customers. Strategic fintech partnerships accelerate innovation.

Collaborations provide expertise in API banking, digital lending for underserved segments, cybersecurity, and process digitization, allowing Mahalaxmi to scale services quickly and cost-effectively without building everything in-house.

Q: How is Mahalaxmi integrating ESG principles into its products, operations, and long-term strategic planning?

A: Environmental, Social, and Governance (ESG) principles are now embedded in the core of our business model, ensuring that sustainability, inclusion, and transparency guide both operations and strategic planning. On the environmental front, the bank is expanding its green lending portfolio, prioritizing financing for renewable energy projects such as solar and micro-hydro initiatives, environmentally compliant MSMEs, and biogas systems. ESG considerations are embedded in credit appraisals to support long-term ecological sustainability. Internally, operational practices are being greened through digitized workflows, energy-efficient lighting, solar backup in select branches, and sustainable procurement and waste management initiatives. Social impact is central to Mahalaxmi’s mission. The bank promotes financial inclusion by extending services to underserved and rural communities through micro and SME lending, branchless banking, and digital channels. Partnerships with institutions enhance access in remote areas, while financial literacy and customer-awareness programs empower communities to engage confidently with the formal banking system. Governance is strengthened through robust board-level oversight, stringent AML/CFT compliance, regular audits, and clear disclosure practices. Ethical conduct, accountability, and a strong risk culture underpin decision-making, with employees trained to adhere to evolving regulatory expectations.

Q: Looking ahead, what do you see as the most significant opportunities and structural challenges for development banks, and how is Mahalaxmi Bikash Bank positioning itself to lead in this evolving landscape?

A: Nepal’s development banks are entering a key transition shaped by regulatory changes, technology, and shifting economic conditions. One major opportunity is the rapid move toward digital and cashless services. Mobile wallets, QR payments, and online commerce are creating new fee-based income streams and improving customer experience. We’re investing in a unified digital ecosystem with fintech partners to support seamless payments, faster onboarding, and better efficiency. Consolidation is another strong opportunity. Larger institutions gain from scale, lower funding costs, and broader risk diversification. After several mergers, Mahalaxmi is positioned to use unified processes, optimized systems, and stronger branch productivity to build a clear competitive edge. MSME-focused products, microfinance partnerships, and digital platforms are helping us expand outreach responsibly. Key challenges include rising NPLs, higher provisioning needs, tighter regulations, interest-rate pressure, and liquidity swings. We address these through conservative lending, stronger monitoring, disciplined pricing, and active ALCO oversight. Our goal is to deliver profitable, inclusive, and digitally driven banking in the years ahead.

This interview was first published in the December 2025 issue of New Business Age magazine.