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11 finance companies faced NRB action in 19 months - E Kantipur

KATHMANDU, APR 29 -

The Nepal Rastra Bank (NRB) took action against 11 finance companies in the last 19 months for their failure to comply with the existing laws and the central bank’s directives.

The finance companies are Nepal Finance Company Limited, Lalitpur Finance, Himalaya Finance, Crystal Finance, Capital Merchant Banking and Finance, Kuber Finance, People’s Finance, General Finance , Baibhav Finance, Progressive Finance and Janaki Finance companies, according to the Annual Finance Companies’ Supervision Report 2011-12.

The report has incorporated the enforcement actions until mid-April 2013. Compared to commercial banks and development banks, more finance companies have faced harsh action from the central bank. So far, only three development banks have been declared crisis-ridden, including Nepal Development Bank, Gurkha Development Bank and United Development Bank, while no commercial bank has faced such an action.

NRB Spokesperson Bhaskarmani Gnawali said as finance companies were not supervised timely in the past, this resulted in bad corporate governance practices in them. “We have aimed to conduct field supervision at least once a year at all banks and financial institutions after separating the supervision division looking after development banks and finance companies. This is expected to reduce such malpractices in the days to come,” he said.

Of the finance companies facing the NRB action, Himalaya, Crystal, Capital, Kuber, General Finance , Nepal Finance and Lalitpur Finance have been declared crisis-ridden.

Once declared crisis-ridden, financial institutions are barred from collecting deposits and making lending and they are asked to reduce their non-performing loans below five percent and improve their capital fund to the required level. The central bank usually declares financial institutions crisis-ridden when their financial health deteriorates.

Before declaring crisis-ridden, the central bank had taken several actions against the companies under the prompt corrective action. In case of Himalaya Finance, the NRB barred it from sanctioning further loans and fined its chairman, general manager and deputy general manager, according to the report.

At Crystal Finance, the police arrested Dibya Kumar Shrestha for taking loans worth Rs 446 million through insider lending. Shrestha’s wife Anju Devi and daughter Alpana are among the promoters of the finance company. Capital Merchant went into red after its former managing director Pawan Karki committed a Rs 2.5-billion fraud by taking loans for himself and for relatives without or weak collaterals.

Kuber’s financial situation also deteriorated due to huge loans to directors against the banking norms, according to the NRB. General Finance was also a victim of insider lending, with some directors using the company’s fund for themselves by creating fake loanees.

Police arrested Raju Kumar Pradhan, general manager of General Finance, for allegedly misappropriating Rs 78.25 million. Pradhan issued cheques worth Rs 13 million in the name of Prem Dhowj Lama on different occasions although the company had no liabilities to Lama.

In case of Nepal Finance, the central bank issued a warning to its directors, fined its chief executive officer and directed the board to remove the chief executive from the company on March 11, 2013.

Lalitpur Finance was declared crisis-ridden after its capital fund turned negative by 12.49 percent, particularly due realty loan defaults. Progressive Finance, which was supposed to merge with Lalitpur Finance, also faced prohibition to extend loans. But on April 30, the NRB lifted the ban by fixing a maximum limit for credit expansion of Rs 280 million.

Progressive’s capital fund deteriorated after its immediate chairman Shambu Bahadur KC and his group used loans from their own company against the banking norms, according to the NRB report.

People’s Finance is under the prompt corrective action and the central bank has sought clarification from some of its directors and current chief manager on why they should not be fined Rs 200,000 for irregularities. The company’s immediate executive chairperson Chhabilal Bhusal was found involved in financial misappropriation creating fake borrowers.

The central bank issued a warning note in the name of Janaki Finance’s board members and its general manager on November 18, 2012 for purchasing a building without following due procedures and not utilising the building for the company. Instead, the company was found to have used the building for earning rent, which is against the central bank’s directive.

Immediate general manger of Baibhav Finance Keshav Nar Singh Rajbhandari was arrested on charge of banking fraud and providing loans against banking norms. Police arrested him after the central bank wrote a letter to the police seeking action against him for his involvement in...

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