Troubled Gurkha faces fresh blow as CEO resigns

KATHMANDU, MAY 06 -  

Chief executive officer of the crisis-ridden Gurkha Development Bank, Krishna Kumar Bhattarai, has resigned from his post following a deadlock over negotiations on injecting additional capital in the bank. Bhattarai’s exit will make the bank’s revival process more difficult.

The Nepal Rastra Bank (NRB) has asked Gurkha to come up with a workable capital plan by mid-June, and the bank was exploring three options — issuing rights shares, one big shareholder purchasing stake of other two promoters with certain additional cash investment and a third party injecting capital. “I resigned as the ongoing negotiations on all three options could not yield positive results,” said Bhattarai. 

However, the central bank, which had approved the Gurkha board’s proposal to appoint Bhattarai as CEO, said it has not been informed about his resignation. Bhattarai was appointed CEO of the troubled bank last year. He was mandated to bring reforms in Gurkha after its top management and board members faced charges as per the Banking Offense Act.

According to Bhattarai, increasing the bank’s capital to the required level is not possible without consensus of top three shareholders who are now facing court proceedings.

Former Chairman DB Bamjan, Director Nirmal Gurung and Rakesh Adukiya-owned Krishi Premura Holding hold 60 percent of the bank’s stake. Bamjan is now under judicial custody, while other two have been released on bail.

“They (the big three shareholders) were not comfortable with the idea of ceding their shares to a third party, and no fruitful dialogue took place on one of them purchasing shares of two others,” said Bhattarai.

As per the central bank deadline, Gurkha should have already held its annual general meeting to endorse the capital plan. “Without the approval of these three top shareholders, we could not endorse the capital plan,” said Bhattarai. “Even if the central bank has authorised the current board to hold AGM, we could decide on adding capital from other shareholders.”

According to Bhattarai, Gurkha requires at least Rs 1 billion to get healthy. With the shareholders, including the big promoters, not ready to inject further capital by issuing rights shares, the Gurkha management had prioritised encouraging one of the three promoters to purchase shares of other two and bringing a third party to inject capital. The bank was holding talks with an individual and a development bank in this regard, according to Bhattarai.

The person had sought 51 percent stake in the bank and certain shares from existing promoter at competitive price. Bhattarai said new investor should invest over Rs 550 million to get 51 percent stake. “As the bank requires fresh cash injection of Rs 300 million to fill the capital erosion, we had told the interested party to invest Rs 300 million and purchase shares of big promoters at competitive price,” Bhattarai said.

The bank had also proposed the two interested parties — the individual and the development bank — that they can purchase 51 percent stake together. Gurkha was declared crisis-ridden after its capital adequacy fell to 2.1 percent and non-performing loans reached 17.5 percent. It also failed to make payment of matured fixed deposits.

The central bank has banned Gurkha from collecting deposits and making lending. It has also been asked to maintain its capital adequacy ratio at 11 percent.

Source: Kantipur