Auditor General’s report reveals misuse of loans
KATHMANDU, APR 13
The 52nd Annual Report of the Office of the Auditor General (OAG) has revealed that borrowers have not been using loans for the stated purpose in a confirmation of Nepal Rastra Bank’s (NRB) suspicions of capital flight by misusing bank funding.
The report released on Sunday has given several examples of how loans taken for one purpose have been used for another. Without naming names, the report has stated that some borrowers have used all the loans for other purposes.
As per the Banking Offence Act, borrowers misusing loans through this method are punishable by a maximum jail term of five years. The act says that a borrower misusing more than Rs10 million will be sentenced to three to five years in prison.
Pointing out a case of one “Maker Private Limited”, the report said that the company received bank loans of Rs306 million but not a single penny was used for the stated purpose. “No legal action has been taken against such borrowers,” the report says. “The regulator should control such transactions.”
The OAG has given eight examples of loans being used for other purposes by taxpayers under the Big Taxpayers’ Office. Likewise, three borrowers registered under the Inland Revenue Office, Lalitpur have done the same. Recently, the central bank issued a directive to banks and financial institutions ordering them to make provisioning for loans that turn suspicious of up to 5 percent within two years due to their possible misuse.
They have been told to make provisioning of 2 percent in the third quarter of this fiscal year and raise it by 0.5 percent every quarter and increase it to 5 percent by mid-January 2017.
After finding that some sugar mills had neither used the loans to operate the factory nor pay the farmers for their sugarcane, NRB had directed BFIs to add a new category of loan name Watch List.
NRB Spokesperson Min Bahadur Shrestha said that during its regular supervision the central bank found some cases of the loans being used for different purpose that their stated objective. “Based on a few sample cases, we cannot confirm nor deny whether such practice has been rampant,” said Shrestha. “But the central bank’s finding is backed by admissions from bankers. And the OAG report has also suggested there has been misuse loans .”
During a recent even to bid farewell of ex-governor Yubaraj Khatiwada and welcome new governor Chiranjeevi Nepal, some bankers had raised the topic about the misuse of loans by borrowers.
According to Shrestha, the central bank can take action under the banking offense act, but the banks are responsible in the first place to ensure that borrowers are using the loan properly. A director of a leading bank said recently that traders had been taking advantage of the interest rate difference by depositing money in Indian banks.
“They are taking short-term loans from Nepali banks on which they pay very low interest and depositing the money in Indian banks where the interest rate is higher,” he said. “They are making large profits without any risks.”
In India, the interest rate on one-year fixed deposits is in the range of 9 percent while Nepal banks have been offering short-term loans at rates as low as 7 percent.
Misuse of loans
Borrower Loan Used in other purpose
A Steel Company Rs 320.6m Rs 102.62m
A Traders Rs 229.85m Rs 196.50m
A Refineary Company Rs 466.83 Rs 90m
An Automobile Company Rs 3.74b Rs 76.19m
A Trading Company Rs 397m Rs77.42m
A Care company Rs 189.52m Rs 25.37m
A Trade Link Rs437.44m Rs113.18m
An Educational Academy Rs 383.17m Rs 147.61m
A Maker Pvt Ltd Rs 305.97m Rs 305.97m
A Solar Pvt LTd Rs 95.67m Rs 21.34m
A Builders Pvt Ltd Rs 12.54 Rs 12.54m
Source: The Kathmandu Post
