NRB to give way out to Gurkha due to better financial health

KATHMANDU, JUN 13 -

Nepal Rastra Bank (NRB) is preparing to give a way out to crisis-ridden Gurkha Development Bank following its improved loan recovery and reduced liability. The central bank, which took over its management five months ago, is optimistic that it can be revived. Gurkha was declared crisis-ridden 27 months ago.

A senior central bank official said that Gurkha’s financial condition is not so bad that it needs to be liquidated. “Capital injection or merger are two options available to Gurkha,” said the official.

NRB has completed a due diligence audit (DDA) of Gurkha which has reached the central bank’s  supervision department. “After the central bank’s management team gives its opinion, the DDA report will go to the board for a final decision,” said the official. “The picture will be clear in the next one month.”

According to the central bank, it has been studying four groups which showed interest in injecting capital into the bank. A majority of them are related to former Gurkhas.

As per the terms of reference given to the central bank’s management team, it will have to try to bring a strategic partner within two months who will purchase the shares of the existing big shareholders and reduce their stake in the bank.

Three shareholders, DB Bamjan, Rakesh Adukiya and Nirmal Gurung, own 62 percent of the troubled bank.

“After Gurkha Development Bank’s liability was reduced, many groups have become interested in investing in it,” the NRB official said.

According to the central bank, its deposits and loans have come down to Rs 1.75 billion from around Rs 5 billion when it was declared crisis-ridden.

It holds individual deposits worth Rs 300 million and liquidity worth Rs 250 million. “This means that the deposits of individual depositors are completely safe,” said the official. “The bank has started paying interest to corporate depositors too.”

The development bank became crisis-ridden due to big 20 loans, most of which were issued to key promoters in disguise against the Bank and Financial Institution Act.

The combined worth of these loans is Rs 900 million. “The central bank’s management has recovered Rs 250 million from them too,” said an NRB source.

The bank’s irregularities came to light after a loan deal worth Rs 130 million made with one Panchalal Maharjan, a businessman who was denied a loan even though he had put up his property as collateral.

Maharjan had been duped into putting up his property as collateral for loans that were given to other people.

Subsequently, the central bank’s inspection unearthed other irregularities. Gurkha’s former chairman DB Bamjan is serving a jail term for irregularities while some officials are still at large.

Other financial institutions declared crisis-ridden are Share Market and Finance, Crystal Finance, Kuber Merchant and Finance, Himalaya Finance, Capital Merchant and Finance, World Merchant Banking and Finance, and General Finance.

All of them became crisis-ridden due to bad corporate governance, fraud and illegal activities like insider lending by their top officials.

Source: The Kathmandu Post