NRB declares ND Bank crisis-ridden

KATHMANDU:

The roster of troubled financial institutions has got longer with the central bank declaring Narayani Development (ND) Bank as ‘crisis-ridden’.

Chitwan-based Narayani Development Bank that was undergoing Prompt Corrective Action (PCA) since June 2012, was finally declared troubled by Nepal Rastra Bank (NRB). The central bank has already declared eight financial institutions — one development bank and seven finance companies — as problematic.

“NRB decided to declare the development bank problematic as it has been unable to straighten its financials even two years after the central bank imposed PCA,” said Bhaskar Mani Gnawali, spokesperson for NRB.

Back in 2012, then chairman of the development bank Dibya Kumar Shrestha was found to have been involved in illegal borrowing from the bank. Shrestha had also made the development bank float loans to his companies and pledged promoter shares as collateral as well, prompting the regulator to take action. The chairman was found to have misused funds worth Rs 36.7 million belonging to the development bank operational in three districts.

“Since the bank’s capital fund had been negative by more than eight percentage points for a while, we had to declare it problematic as per regulation,” pointed out Gnawali. The decision to this effect had been taken by NRB’s board meeting on April 10.

The bank still has Rs 615 million in outstanding loans and has deposits worth Rs 962.7 million till mid-February 2014, according to NRB statistics.

There is total deposit of around Rs six billion in the other eight financial institutions that were previously declared crisis-ridden. NRB had declared Gurkha Bikas Bank problematic in March 2011 and since then Capital Merchant Banking and Finance, Nepal Share Markets and Finance, General Finance, Kuber Merchant Banking and Finance, World Merchant Banking and Finance, Himalaya Finance, and Crystal Finance have been officially labelled as troubled.

Most financial institutions ran into trouble after cooling down in the real estate market in late 2009. Almost all these institutions were involved in massive insider lending against substandard collateral.

The central bank declares financial institutions that are in near-insolvent state with more bad loans as ‘problematic’. These institutions are not allowed to collect or renew deposits or to provide loans, recruit new staff till they get their financials straightened up — manage prescribed capital fund, bring bad loans below five per cent, among others.

If the financial institutions are unable to get their act together for a long time, NRB has to recommend liquidation as the ultimate option. So far, none of the troubled institutions have made it back to normal state. At present, NRB has taken over the management of Gurkha Bikas Bank and Nepal Share Market Finance under its command to save them from imminent closure.

NRB has already liquidated Nepal Bikas Bank and Samjhana Finance after they failed to revive itself. Likewise, liquidation of the third institution — United Bikas Bank — will begin as soon as Patan Appellate Court gives a go ahead.

International Monetary Fund’s representatives have urged the central bank to include Special Resolution Regime in its Bank and Financial Institutions Act that will give NRB the authority to liquidate any financial institution in bad shape without having to seek consent.

Source: THT