NRB seizes NDB liquid assets

Nepal Rastra Bank (NRB) today sent a letter to Nepal Development Bank (NDB) asking it to explain why it should not be liquidated.
According to clause 74 of the Banks and Financial Institutions Act (BAFIA), NRB must file a case at Patan Appellate Court to begin the process of liquidation of a financial institution whose financial damages are beyond repair. However, before filing the case NRB must seek justification from the bank.
Earlier, in the afternoon, an NRB team led by deputy director Prakash Chandra Bhattarai went to NDB and seized all the cash, cheques and securities of the bank. But the NRB has not yet decided about the staff. NDB manager Purna Prasad Sharma said, "They told us that we could come to the office tomorrow as well." 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.
Meanwhile, the depositors and shareholders had gheraued the bank's head office in Heritage Plaza after the news of NRB's move was published. The board of the NDB was preparing to meet when the team from NRB arrived and seized all the cash, cheques and securities.
Nepal's first development bank -- Nepal Development Bank -- 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 assets (NPA) 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.

Nepse suspends NDB share tarding
KATHMANDU: Nepal Stock Exchange (Nepse) has suspended the trading of NDB shares. Yesterday, NDB shares were traded at Rs 126 per unit.
The central bank'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 or 0.65 per cent to 770.9 points. As a result, Nepse went down by 3.39 points or 0.48 per cent to 699.62 points.
NRB had repeatedly warned NDB and declared it 'problematic' in 2007. It had 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.

Depositors beware !
KATHMANDU: Depositors of NDB will not be able to withdraw their money after NRB's move. Public shareholders might also lose, contrary to popular belief that the financial institutions' share will not be in loss and that the central bank will rescue the financial institutions. "NRB has taken the decision to discourage malpractices in financial institutions, and depositors -- both institutional and individual -- should think twice before depositing money in any financial institution," said an NRB official. The bank has a total deposit of Rs 720 million as at mid-March 2009. Of the total deposit, the bank has not been able to return Rs 330 million worth of institutional deposits even after expiry of maturity date. The Employment Provident Fund (EPF) and Nepal Army´s Welfare Fund had deposited Rs 330 million and Rs 200 million, around 45 per cent and 27 per cent respectivley of the deposits. The financial institutions are custodians of public money, so they should be more transparent. But the transparency is only in publishing quarterly report in the newspapers and bad internal governance and mismanagement have hit many financial institutions that need to be corrected, said the NRB official. "The central bank is preparing to interfare in some other financial institutions to safeguard the promoters' interest and depositors money."