Nepal Dev Bank to be liquidated

In a landmark decision, Nepal Rastra Bank (NRB) has decided to send the long-troubled Nepal Development Bank into liquidation after concluding that all its five-year long efforts to revive the bank failed owing to incompetent and defiant management.

A vital board meeting of the central bank held on Tuesday also decided to freeze all the transactions of the bank, including accounts maintained by the NDB at other financial institutions until the appointment of a liquidator. It, however, decided to release a limited amount for essential administrative expenditures of the bank. "The action was very necessary to clean up the mess in the Nepali banking sector," NRB Governor Deependra Bahadur Kshetry told myrepublica.com.

The board meeting also decided to send a letter to the board of Nepal Development Bank asking it to justify why shouldn´t the NRB initiate liquidation process by filing a case at the Appellate Court in Patan within 15 days.

"The clarification has been sought due to legal provisions. Otherwise, transactions, property, liquid assets at the bank, bank accounts and books of accounts will be seized from Wednesday itself," said a highly-placed source.

What this means is, depositors of the bank would not be able to withdraw their money, among others, from Wednesday.

The bank has a total deposit of Rs 720 million as at mid-March 2009. Of the total deposit, the bank has not been able to return Rs 330 million worth of institutional deposits, mainly belonging to Employees Provident Fund (EPF) and Nepal Army, even after the expiry of maturity date.

EPF and Nepal Army´s Welfare Fund have deposits worth Rs 330 million and Rs 200 million as the fixed term deposits at NDB. That is, 45 percent of the deposits owned by the bank belongs to EPF, while NA´s Welfare Fund deposit concentration is 27 percent.

As per the clause 74 of the Banks and Financial Institutions Act, the NRB has to file a case at the Patan Appellate Court to begin the process of liquidation of a financial institution whose financial damages are beyond repair.

The NDB, which started its operation in 1998 as a development bank, has a paid-up capital worth Rs 320 million. Of the total capital, 70 percent is owned by the promoters while remaining 30 percent shares were subscribed by general public.

Despite repeated directives issued by the central bank aimed at improving financial health of NDB, its negative capital fund, which was 25.02 percent, further worsened to 30.43 percent by mid-March 2009, according to an inspection report of NRB. Similarly, its non-performing loans also scaled to almost 30 percent from 25.02 percent. Accumulated loss of NDB too touched Rs 678.6 million by the end of mid-March 2009.

In its decision, the central bank has accused NDB of not being able to fulfill a set of directives that it had issued to the management of the bank while declaring the NDB a problematic bank in October 2007. The NRB has argued that the whopping negative capital fund, worst internal governance and repeated violation of the central bank´s directives are the major factors that compelled the central bank to take the decision.
Source:
Myrepublica.com