Bankers run to NRB as NSMF fails to pay interest

KATHMANDU, NOV 24 -

Bankers have asked Nepal Rastra Bank (NRB) to intervene after Nepal Share Market and Finance (NSMF) defaulted on interest payments for the loans they had provided under inter-bank lending.

A meeting of the Nepal Bankers Association (NBA) on Tuesday decided to send a formal letter to the central bank seeking its support for collecting interest which has remained unpaid since June.

Around a dozen commercial banks had provided loans of about Rs 800 million to NSMF which sank after its former executive chairman Yogendra Prasad Shrestha misappropriated about Rs 2.6 billion of the company’s money.

The meeting also decided to ask NRB to treat inter-bank lending like regular individual deposits. As per the NRB Act, individual depositors get first priority in getting back their money when a financial institution goes bankrupt.

“We are not satisfied with the priority list fixed by NRB, and have requested it to direct NSMF to pay the money it owes us,” said Bijay Pant, chief executive officer (CEO) of Janta Bank Nepal which had loaned it Rs 180 million. “Banks don’t have their own money to lend, so ultimately it is the depositors’ money.”

Bankers say this is the first time that such a huge inter-bank loan has gone bad. “If this not sorted out soon, banks and financial institutions will lose confidence in each other,” said Pant. All the banks which had provided loans to NSMF had written to NRB and NSMF a few months ago expressing interest to buy its good loans. But they are yet to get approval from the central bank. The meeting also decided to ask NRB once again to allow them to buy such loans.

“We are looking forward to getting a positive decision from the central bank,” said Anil Shah, CEO of Mega Bank which had lent Rs 50 million. “If we fail to recover our loan by the end of the second quarter of this fiscal year, we have to provision 25 percent of the sum.”

According to bankers, bank profits which have already been squeezed in the first quarter will go down further if they have to provision such a huge amount.

NRB has said that small depositors will get first priority while getting repayment from troubled financial institutions. NRB Spokesperson Bhasker Mani Gnawali said that the central bank was aware about the need to help BFIs with money stuck in NSMF. “Definitely, we are working on a plan and will make it public soon,” added Gnawali.

NSMF CEO Nandan Hari Sharma said they would start repaying the banks after they finish returning the depositors’ money amounting to Rs 2.18 billion.

“Loan recovery is progressing on a war footing, and till date we have recovered and repaid about Rs 1.2 billion,” said Sharma.

The NSMF management said they would recover Rs 370 million from former executive chairman Shrestha within two weeks. According to Sharma, they will get back another Rs 1 billion by selling his shares in Himal Hydro and Star Mall which is owned by Shrestha and his family.