Commission prepares draft Bills to better regulate co-ops

KATHMANDU:

A high-level commission formed to launch an inquiry into troubled savings and credit cooperatives has prepared drafts of two Bills and a regulation to better regulate financial cooperatives, protect the interest of depositors, and ensure early settlement of cases related to financial irregularities at those institutions.

The drafts of the two Bills — Cooperative Bill, and Cooperative Loan and Deposit Recovery Bill — and Cooperative Loan and Deposit Recovery Regulation, along with a detailed report on status of troubled financial cooperatives were handed over to Prime Minister Sushil Koirala today.

“Upon receiving the report and drafts of Bills and regulation, the PM directed Chief Secretary (Leela Mani Poudyal) to take necessary steps to

resolve problems facing savings and credit cooperatives,” said Gauri Bahadur Karki, chairman of the commission formed around six months ago to identify troubled financial cooperatives and public deposits at stake in those institutions.

During its investigation, the three-member commission had found that 12,962 depositors of 162 cooperative units risked losing Rs 10 billion, including Rs 7.60 billion in principle amount and Rs 2.40 billion in interest.

Of the total amount at risk, over 50 per cent of the amount, or Rs 5.5 billion, was parked at Oriental Cooperatives.

The amount is exclusive of Rs 1.36 billion that Oriental’s Chairman Sudhir Basnet owes to homebuyers, whom he had pledged to provide housing units or apartments.

But since the formation of the commission, Basnet only gave Rs 70 million to the depositors.

“During the investigation, we noticed many cooperatives were facing chronic problems due to lack of proper lending and deposit collection policies and haphazard lending practices,” Sitaram Upreti, a member of the commission, told journalists today. “Fearing that these problems might grip other institutions, we have prepared drafts of two Bills and a regulation so that immediate preventive measures could be adopted to protect the interest of depositors.”

The draft of the Cooperative Bill, for instance, proposes formation of Cooperative Promotion Committee headed by the minister for cooperatives and poverty alleviation.

The committee will be the final body to interpret on principles of cooperatives and will issue directives to regulate the cooperatives sector. It

will also perform the duty of government’s advisor in formulation of various policies and laws related to the cooperatives.

The draft Bill has defined cooperatives as autonomous bodies, but if they fail to work in the interest of the general public, they, according to the proposed legal document, will be subject to harsh punishments.

For instance, those who acquire or extend loans on the basis of paper companies or false information, those found over-valuating the collateral, and those submitting doctored audit reports would face jail sentence of one to three years, according to the draft Bill.

The draft Bill has also proposed jail sentence of 15 to 20 years to promoters who embezzle public deposit of over Rs 500 million, while even those involved in misappropriation of public deposits of Rs one million could face jail sentence of up to one year.

To complement these provisions of the draft Cooperative Bill, the commission has also come up with a draft of the

Cooperative Loan and Deposit Recovery Bill and Regulation, which propose formation of a tribunal to expedite the process of recovering unpaid loans and deposits embezzled by promoters.

The tribunal, which holds the authority to freeze movable and immovable assets, will look into loan recovery or deposit embezzlement cases of Rs 100,000 or more in principle amount, says the draft Bill.

Drafts details

• Cooperative Bill defines cooperatives as autonomous bodies

• Cooperatives failing to work in interest of public will be subjected to harsh punishments

• Those acquiring loans on false information or over-valuating collateral to face jail of one to three years

• Promoters who embezzle public deposit over Rs 500m to be jailed 15 to 20 years

• Those involved in misappropriation of deposit of Rs one million to get up to one-year jail sentence

• Cooperative Loan and Deposit Recovery Bill and Regulation propose formation of a tribunal to expedite the process of recovering unpaid loans and deposits embezzled by promoters

Source: THT