Gurkha Bikas Bank is struggling to get back on its feet three years after troubles at the seemingly strong development bank surfaced, despite the central bank’s efforts since the past 15 months.
Although the class ‘B’ national level development bank is gearing up to conduct a special general meeting to get its balance sheets of the last three fiscal years approved, its retained loss is running higher than Rs 1.71 billion. The management team deployed by Nepal Rastra Bank (NRB) has announced the special general meeting to be held on March 30, but the bank is still in tatters.
“We have been able to recover some loans, cut the cost drastically and have managed enough cash flow to return individual deposits,” said an NRB official working closely with the bank. NRB’s team had taken over the reins of the troubled development bank in January 2013.
Due to the retained losses, the bank’s capital fund is negative by Rs 1.81 billion.
However, individual depositors are able to withdraw their deposits without any rationing after NRB took over the management. Managing enough cash flow from the remaining good loans to handle withdrawals is the biggest achievement so far for the central bank.
“Among the total deposit of Rs 1.58 billion, there is still Rs 140 million belonging to the public and there are good loans worth Rs 250 million that are paying their dues on time, so the bank is in a comfortable place to serve the individual deposits,” pointed out the official.
Despite NRB’s efforts, the non-performing loans of the bank stand at 25 per cent, meaning borrowers of Rs 500 million worth of loans are not paying it back.
There is a possibility for the bank being revived if it can recover some big loans or get investors to inject capital. Moreover, if the advance worth Rs 295 million paid by the bank to Krishi Premura Holdings for a piece of land can be recovered, there is a good chance for the development bank to regenerate.
Rakesh Adukiya, who owned Krishi Premura and was one of the major promoters of the bank, had sold the piece of land to the bank, violating central bank’s regulation that forbids financial institutions from buying promoter’s properties.
Back in January 2011, the involvement of the bank’s directors, promoters and management in large scale financial embezzlement and insider lending was revealed. Along with the revelation, the dispute between the directors led NRB to declare the bank troubled in March 2011. The then chairman DB Bamjam and a few top management personnel are in prison on banking fraud charges.
The most important indicator of a financial institution’s health measurement — Capital Adequacy Ratio — is negative by 31 per cent, which needs to be above 10 per cent.
After being declared troubled by NRB, a new board was elected that awarded the bank’s management contract to independent consultants. They also failed to find an investor interested to inject capital to make the bank healthy. NRB’s attempt to find interested entities to buy the bank’s share and inject capital in the bank has so far been in vain.
If the situation persists for a longer period, NRB will have little choice other than to seek liquidation of the development bank. The Nepali financial sector has already witnessed two liquidations, of Nepal Bikas Bank and Samjhana Finance, while the third one — United Bikas Bank — is on its way to getting liquidated.
source: the himalayan times,12 march 2014
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Although the class ‘B’ national level development bank is gearing up to conduct a special general meeting to get its balance sheets of the last three fiscal years approved, its retained loss is running higher than Rs 1.71 billion. The management team deployed by Nepal Rastra Bank (NRB) has announced the special general meeting to be held on March 30, but the bank is still in tatters.
“We have been able to recover some loans, cut the cost drastically and have managed enough cash flow to return individual deposits,” said an NRB official working closely with the bank. NRB’s team had taken over the reins of the troubled development bank in January 2013.
Due to the retained losses, the bank’s capital fund is negative by Rs 1.81 billion.
However, individual depositors are able to withdraw their deposits without any rationing after NRB took over the management. Managing enough cash flow from the remaining good loans to handle withdrawals is the biggest achievement so far for the central bank.
“Among the total deposit of Rs 1.58 billion, there is still Rs 140 million belonging to the public and there are good loans worth Rs 250 million that are paying their dues on time, so the bank is in a comfortable place to serve the individual deposits,” pointed out the official.
Despite NRB’s efforts, the non-performing loans of the bank stand at 25 per cent, meaning borrowers of Rs 500 million worth of loans are not paying it back.
There is a possibility for the bank being revived if it can recover some big loans or get investors to inject capital. Moreover, if the advance worth Rs 295 million paid by the bank to Krishi Premura Holdings for a piece of land can be recovered, there is a good chance for the development bank to regenerate.
Rakesh Adukiya, who owned Krishi Premura and was one of the major promoters of the bank, had sold the piece of land to the bank, violating central bank’s regulation that forbids financial institutions from buying promoter’s properties.
Back in January 2011, the involvement of the bank’s directors, promoters and management in large scale financial embezzlement and insider lending was revealed. Along with the revelation, the dispute between the directors led NRB to declare the bank troubled in March 2011. The then chairman DB Bamjam and a few top management personnel are in prison on banking fraud charges.
The most important indicator of a financial institution’s health measurement — Capital Adequacy Ratio — is negative by 31 per cent, which needs to be above 10 per cent.
After being declared troubled by NRB, a new board was elected that awarded the bank’s management contract to independent consultants. They also failed to find an investor interested to inject capital to make the bank healthy. NRB’s attempt to find interested entities to buy the bank’s share and inject capital in the bank has so far been in vain.
If the situation persists for a longer period, NRB will have little choice other than to seek liquidation of the development bank. The Nepali financial sector has already witnessed two liquidations, of Nepal Bikas Bank and Samjhana Finance, while the third one — United Bikas Bank — is on its way to getting liquidated.
source: the himalayan times,12 march 2014
LINK
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