Nepal Rastra Bank (NRB) has decided to liquidate United Development Bank (UDB) — a troubled financial institution — after it failed to improve despite central bank’s repeated prescriptions.
The development bank was declared ‘troubled financial institution’ in March, 2011 after the central bank revealed a sharp deterioration in its financial health, mainly due to heavy embezzlement of funds by its promoters.
Inspection by the central bank had disclosed that the district-level development bank in Bara established with a paid up capital of Rs 85 million, had a negative net worth of Rs 120 million. The central bank had then asked its management to recoup money that the promoters embezzled and instructed promoters to inject additional capital to improve its financials within six months. But it failed to follow the central bank’s directives leaving it with no option but to liquidate it.
It is the third financial institution sent to liquidation in the banking history after Nepal Development Bank and Samjhana Finance.
According to the central bank records show that the development bank got into trouble as its executive chairman Rabindra Bahadur Singh siphoned off Rs 65 million of the total paid up capital for personal use. The inspection revealed that Singh had created fake loans. It has also floated loans to the promoters flouting central bank rules.
The central bank has also asked Nepal Police to take action against Singh and director of the development bank Radha Krishna Amatya under the Banking (Offenses) Act.
Currently, Singh and Amatya are behind bars in Birgunj.
NRB records revealed that the development bank has a total deposit worth Rs 81.5 million, including Rs 5.6 million from the public, Rs 70 million from the Nepal Army Welfare Fund and Rs 5.9 million from local institutional depositors.
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