Sunday, June 14, 2009

Nepal Devlopment Bank Depositors to Get Money Back

Individual depositors of the troubled Nepal Development Bank (NDB) need not worry as according to Nepal Rastra Bank (NRB), NDB has Rs 16.5 million cash and Rs 160.3 million bank deposit — including Rs 95 million deposit in Nepal Cooperative — Rs 95.7 million savings deposit, Rs 84.9 million fixed deposit and Rs 193.5 million other deposits.

“The findings of NRB show that except institutional depositors — Employee Provident Fund (Rs 331.4 million) and Nepal Army (Rs 180 million) — individual depositors need not worry as they will get their deposits back,” the central bank said. The NDB has not been able to return the Nepal Army’s and Employee Provident Fund’s (EPF) term deposits even after maturity and they might lose their deposits. Nepal Army and EPF have been asking for their money back repeatedly but the bank is unable to return it
On June 2, NRB decided to ask NDB why should it be not sent into liquidation on June 2. It sent a letter on June 3 to NDB seeking clarification.

According to clause 86 of the Nepal Rastra Bank Act, NRB has given a 15-day deadline for the clarification to NDB. If the clarification is not satisfactory, NRB will file a case at Patan Appellate Court under clause 74 of Banks and Financial Institutions Act (BAFIA) to begin the process of NDB’s liquidation
After seeking clarification, NRB seized all the cash, cheques and securities of the bank and froze its accounts in various financial institutions.

NDB — Nepal’s first development bank — started operations in 1998 and has a paid-up capital of Rs 320 million but its accumulated loss is more than double the paid-up capital, Rs 690.2 million by the end of mid-March. Its non-performing assets (NPA) is at 55.09 per cent and capital adequacy ratio (CAR) at a whopping 48.31 per cent. A bank must maintain its CAR at 11 per cent.

The NDB top brass has blamed NRB for taking biased action. “NRB treats other financial institutions and NDB unequally,” blamed NDB chairman Amar Gurung.

However, NRB governor Dipendra Bahadur Kshetry that other financial institutions obeyed the NRB directives and have been improving.

“Over the last four years, the NDB board never followed NRB’s directives,” Kshetry said adding that had NDB paid heed to the directives the condition of the bank would have improved.

The central bank has declared it a ‘problematic bank’ on October 11, 2007 after NDB and its board repeatedly flounted the central bank’s directives. “NDB board members constantly failed to abide by NRB directives, were involved in personal gain and put depositors’ money at risk,” said NRB. “Financial institutions are custodians of public money and they have no right to put public money at risk.” Nepal Bankers’ Association (NBA) has suggested NDB come up with a concrete plan within 15 days to revive itself. “NDB still has time to furnish its explanation with a convincing business plan to save itself,” said Sashin Joshi, president of NBA and CEO of NIC Bank.

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