NRB declares Lalitpur Finance crisis-ridden; gives six months to set things in order

ShareSansar, March 31:  

Nepal Rastra Bank has declared Lalitpur Finance a crisis ridden company and given it six months time to bring the company on track.

On 2071 Falgun 12, Lalitpur Finance signed an acquisition with Guheyshwori Merchant Banking and Finance Limited to be acquired by the latter. Following the NRB’s decision to declare the company crisis-hit, the acquisition plan now seems like a stop gap measure hastily devised to ward off NRB actions and prevent share price from sliding.    

After an on-site study, an NRB team found that after setting aside a loan provisioning Rs 28 crore 60 lakh 73 thousand, the finance company’s capital fund turned negative by 14.37%, Non Performing Loans rose to 70.65%, and paid up capital fell to Rs 18 crore 79 lakh, which is below the set limits.

Several glitches also surfaced during the inspection carried out by the team from the NRB.

The finance company has disbursed loans amounting to more than 25% of its primary capital to same individuals, companies or groups or to people with close ties.

Likewise, loans were disbursed without proper analysis and provisioning with a large chunk of that loan--beyond the cap set by the company itself--invested in the real estate sector. It was also found that the company waived a huge amount of regular interests and fines without any proper basis.

The NRB had written to the finance company on Falgun 6, 2071 ordering it to clarify why it should not be declared as crisis ridden. The finance company had sent a reply on Falgun 22 without mentioning concrete plans or strategy for improving the situation at the company.  

After that, declaring Lalitpur Finance as crisis-ridden, the NRB has given six months to the finance company to set things in order.

The NRB has given following instructions to the company:
• Maintain adequate paid up capital and capital adequacy ratio.
• Collect additional deposits and renew deposits that are past the maturity period.
• Not to disburse additional loans or offer guarantees.
• Return deposits that have matured. But take approval of the NRB if the amount is more than Rs 2 lakh.  
• Not to open new branches.
• Not to buy or sell fixed asset without the approval from the NRB.
• Not to increase allowances, salaries and other pecuniary benefits of the board members and staff.
• Not to hire new employees or promote existing ones without the approval from the NRB.
• To bring down the loan ratio to less than 5%.
• Not to declare or distribute dividends.
• To ensure proper systems for institutional good governance, internal checks and risk management.