NRB declares Crystal crisis-ridden

KATHMANDU, SEP 21 -

The Nepal Rastra Bank’s (NRB) board on Thursday declared Crystal Finance Company crisis-ridden after the company’s financial health deteriorated as a result of insider lending.

Most of the company’s loans have gone to the real estate sector. According to an NRB report, as of May 2012, its lending to the construction is at Rs 379.33 million, while consumer loans account for Rs 32 million. Its total lending stands at Rs 918.12 million, but has deposit mobilisation of Rs 605 million.

A senior NRB official that bank’s financial situation deteriorated as it had to make provisioning of loans that went to its promoters.

The finance company was failing to increase its paid-up capital proportionally as directed by the central bank. Its paid-up capital is just Rs 70 million which it should have increased every year for the last five years to meet the requirement of Rs 200 million by mid-July 2013.

Meanwhile, the NRB board meeting expanded the scope of merger bylaws, deciding to allow merger between public and private financial institutions.

Two pairs of financial institutions, each with a partner yet to file for initial public offering (IPO), have applied to the central bank for merger. The first pair consists of Corporate Development Bank and Social Development Bank, in which the former has already issued IPO. Likewise, Araniko Development Bank, a publicly traded bank, is planning to merge with Surya Development Bank which is yet to go public.

Earlier, the central bank had sought the opinion of the Securities Board of Nepal (Sebon) and the Company Registrar’s Office on the matter. After both of them gave positive signal for such merger, the central bank decided in favour of allowing such mergers. The central bank board also decided to give recognition to the due diligent audit (DDA) conducted before the issuance of the letter of intent (LoI) to merging BFIs. As per the current bylaws, BFIs going for a merger will have to conduct a DDA after getting LoI from the central bank.

BFIs had been demanding that the DDA conducted before receiving LoI be recognised by the central bank. NRB officials said acceptance of the DDA conducted before the merger process starts would help build confidence among BFIs going for merger as they can negotiate based on the findings of the DDA.

Source: The Kathmandu Post