Deposits of over Rs 8 billion at risk
KATHMANDU, May 30:
Public deposits worth more than Rs eight billion are stuck at troubled financial institutions (FIs).
With the central bank’s decision to include General Finance too in the group of crisis-ridden financial institutions, there are now deposits worth Rs 8.7 billion in eight troubled financial institutions. Though depositors are allowed to withdraw money from financial institutions that have been declared ‘troubled’ or ‘crisis-ridden’, withdrawal of Rs 200,000 and more needs to be approved by Nepal Rastra Bank (NRB).
So far, NRB has declared 11 financial institutions as crisis-ridden among which two — Nepal Bikas Bank and Samjhana Finance — are already under liquidation, while United Bikas Bank is also facing imminent liquidation. Since NRB started strengthening its supervision of financial institutions two years back, more and more irregularities are being detected.
In the last fiscal year, the central bank conducted on-site inspections of 60 financial institutions, among which 20 went through special inspection. The increased scrutiny of NRB has helped detect misdeeds and lack of good governance in financial institutions but depositors still have to suffer.
“In the last two years, NRB has increased its supervision of all types of financial institutions, that is why two departments have been established to supervise finance companies and development banks,” said an official at the central bank’s finance companies supervision department.
“Yet, there still are some irregularities taking place in financial institutions that need to be minutely investigated to unravel the discrepancies,” added the official.
Among the troubled finance companies, Capital Merchant Banking’s balance sheet shows the highest amount of deposit worth Rs 2.48 billion till mid-March. Likewise, Crystal Finance has the least amount of deposit worth Rs 494 million by the review period.
Financial institutions that have been declared problematic are not allowed to collect or renew deposits or provide loans, and recruit new staff till they get their financial straightened up, and have to manage the prescribed capital fund and bring bad loans below five per cent, among others. If the financial institutions are not able to bring their act together for a long time, NRB has to recommend liquidation as the ultimate option.
The public trust these financial intermediaries with their savings and it is unfortunate that the ones that have been trusted are using the funds as their own pocket change. Ultimately, if a bank fails it is depositors that are hurt the most.
“There is no denying that the failure of financial institutions so far seems to be due to bad governance on the part of promoters, directors and executives,” said president of Nepal Finance Companies Association Rajendra Man Shakya. The number of culprits involved in banking crimes who have been nabbed by the Central Investigation Bureau has exceeded 30 in the last one and a half years while a few are still at large.
“But at the same time, finance companies being small institutions with little paid up capital, it does not have the capacity to absorb losses of more than a couple of million rupees unlike larger banks, so it lands in trouble sooner,” added Shakya.
Source: THT
