Under clause 74 of the Banks and Financial Institutions Act, NRB must file a case to begin of liquidation of a financial institution whose damages are beyond repair. Before filing the case NRB must seek justification from the bank.
An NRB team led by deputy director Prakash Chandra Bhattarai went to NDB and seized all cash, cheques and securities.
NRB has not yet decided about the staff. NDB manager Purna Prasad Sharma said, “They said we could come to office tomorrow.” Depositors gheraoed NDB, accusing it of cheating.
A board meeting of the central bank yesterday evening had decided to freeze all the transactions of the bank including its accounts in various financial institutions and sent it for liquidation.
Nepal’s first development bank that started its operation in 1998 has a paid-up capital worth Rs Rs 320 million but its accumulated loss is more than double the paid up capital — at Rs 678.6 million by the end of mid-March. Its non-performing loan is also at almost 30 per cent.
The bank had also signed an agreement with Strategic Partners led by Deepak Narsingh Shrestha on December 4, 2007 for taking over the responsibility of managing the bank and injecting additional capital required. Strategic Partner nominee Sunanda Bahadur Shrestha was appointed CEO from December 8, 2007. But Shrestha and his group knocked on the NRB door after they were not given any decisive role and power even after injecting Rs 70 million in NDB.
“To increase the capital, the bank has issued rights shares. But board members themselves have not applied for rights shares,” an NDB official said citing it as an instance of the board’s bad intentions.
Nepal Stock Exchange (Nepse) has suspended the trading of NDB shares. Till yesterday, NDB shares were traded at Rs 126 per unit.
NRB’s first-ever bold decision to push a financial institution into liquidation has pulled the development bank sub-group’s index down by 5.06 points to 770.9 points. As a result, Nepse went down by 3.39 points to 699.62 points.
NRB had repeatedly warned NDB and declared it ‘problematic’ in 2007. It had also issued a gamut of directives in a bid to revive NDB, but the bank led by Uttam Pun, at times, even threatened the central bank instead of improving its own corporate management and internal governance.
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