United Dev Bank on the verge of liquidation

KATHMANDU, JAN 06 -

After Nepal Development Bank (NDB) and Samjhana Finance Company, Bara-based United Development Bank is now on the verge of liquidation.

After the bank failed to improve its financial health even one year after being declared crisis-ridden for the second time, a board meeting of the Nepal Rastra Bank (NRB) on Thursday decided to ask United why its liquidation process not be initiated within 15 days.

If United fails to come up with a satisfactory answer, NRB will file a court case for its liquidation, according to a senior NRB official.

Last February, the central bank had declared United crisis-ridden after it net worth went negative by Rs 117.9 million and Non-performing loan (NPL) level reached 87.81 percent. NRB had given the bank a six-month time to turn its net worth positive by 11 percent and reduce NPL level to 5 percent. However, chances of the bank improving its financial health are slim, as its net worth is still negative by Rs 120 million, NPL level at around 75 percent, the central bank official said. “Its liquidation is inevitable, as not a single party is interested in acquiring it.”

If sent, United will be the third financial institution to go into liquidation after Sajhana (in February 2011) and NDB (in June 2009).

After the liquidation process begins, individual depositors will be first returned their savings, as per the Bank and Financial Institution Act (BAFIA). Then, it comes the turn of fixed depositors, followed by institutional depositors, government tax, NRB liabilities, employees, inter-bank loans and finally shareholders.

The NRB official said individual depositors should worry about their money. “United has individual deposits worth Rs 5 million, but its deposits in the central bank and other commercial banks worth collectively around Rs 5 million has already been frozen,” he said. “Therefore, individual depositors’ money is not at risk.”

However, it is uncertain whether the Army Welfare Trust’s deposits worth Rs 55 million could be withdrawn, said NRB officials. The trust initially had deposits worth Rs 70 million, but it recovered around Rs 15 million through the sale of collaterals of defaulted loans.

United landed in crisis because of large-scale embezzlement of funds by its Executive Chairman Rabindra Bahadur Singh and other top officials, according to NRB.

Source: Kantipur