Nepal Rastra Bank (NRB) has directed banks and financial institutions (BFIs) to issue good-for-payment cheques only after transferring the cash mentioned in the cheque to a different account.
The directive was issued after the fake good-for-payment cheque scam at H&B Development Bank inflicted losses of at least Rs 426.18 million on the class ‘B’ financial institution.
“Till now, we used to allow BFIs to issue good-for-payment cheques after freezing the amount parked in the account of the cheque issuer. The amount had to remain locked till the time the cheque was converted into cash. But we later noticed that a few BFIs were not following this practice,” NRB Spokesperson Manmohan Kumar Shrestha said, expressing hope, that the latest change will ‘reduce financial risk at BFIs issuing such instruments’.
NRB had introduced the new provision for issuance of good-for-payment cheques as these instruments are considered as good as cash. As a result, many bearing such cheques were earlier found to be engaged in illegal act of pawning them to
obtain loans.
This illegal practice came to light when the fake good-for-payment cheque scandal broke out at H&B Development Bank in December 2012 due to weak internal control system.
The scam at H&B broke after the bank’s Kuleshwor branch manager, Niraj Nepal, colluded with a few other people and extended them fake good-for-payment cheques, without freezing the amount equivalent to that mentioned in the cheques.
The bearers of these fake cheques then used them as security to obtain loans. These fake cheques were also extended to individuals to make payments.
The bank later found itself in a soup after individuals and financial institutions that had received these cheques could not convert them into cash.
To compensate, the bank had to provision over Rs 665 million, which caused its financial health to deteriorate. As the financial condition of the bank continued to worsen, NRB took prompt corrective action against it on November 27 last year. It then took over the bank’s management on May 28 and suspended its CEO Jasoda Sainju.
This week, police nabbed Sainju and Pushpa Jyoti Dhungana, a board member of the bank, on charges of misappropriating Rs 47.8 million deposited at the bank by one Prashant Agrawal of New Asia Pacific Traders Pvt Ltd.
source: the himalayant times,12 oct 2014
LINK
The directive was issued after the fake good-for-payment cheque scam at H&B Development Bank inflicted losses of at least Rs 426.18 million on the class ‘B’ financial institution.
“Till now, we used to allow BFIs to issue good-for-payment cheques after freezing the amount parked in the account of the cheque issuer. The amount had to remain locked till the time the cheque was converted into cash. But we later noticed that a few BFIs were not following this practice,” NRB Spokesperson Manmohan Kumar Shrestha said, expressing hope, that the latest change will ‘reduce financial risk at BFIs issuing such instruments’.
NRB had introduced the new provision for issuance of good-for-payment cheques as these instruments are considered as good as cash. As a result, many bearing such cheques were earlier found to be engaged in illegal act of pawning them to
obtain loans.
This illegal practice came to light when the fake good-for-payment cheque scandal broke out at H&B Development Bank in December 2012 due to weak internal control system.
The scam at H&B broke after the bank’s Kuleshwor branch manager, Niraj Nepal, colluded with a few other people and extended them fake good-for-payment cheques, without freezing the amount equivalent to that mentioned in the cheques.
The bearers of these fake cheques then used them as security to obtain loans. These fake cheques were also extended to individuals to make payments.
The bank later found itself in a soup after individuals and financial institutions that had received these cheques could not convert them into cash.
To compensate, the bank had to provision over Rs 665 million, which caused its financial health to deteriorate. As the financial condition of the bank continued to worsen, NRB took prompt corrective action against it on November 27 last year. It then took over the bank’s management on May 28 and suspended its CEO Jasoda Sainju.
This week, police nabbed Sainju and Pushpa Jyoti Dhungana, a board member of the bank, on charges of misappropriating Rs 47.8 million deposited at the bank by one Prashant Agrawal of New Asia Pacific Traders Pvt Ltd.
source: the himalayant times,12 oct 2014
LINK
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