Though late, the central bank has decided to
take over the management of Gurkha Development Bank to save the ailing class
'B' financial institution from liquidation.
"The central bank will send a three-member team with a mandate of six months to handle the management of the development bank as a last resort to save it," a highly placed source at central bank said, adding that the board meeting late last evening decided to send a team to take over Gurkha Development Bank.
"The central bank team will take over the development bank within this week," he said. "It will try to find a strategic partner by issuing ‘Terms of Reference’."
However, the central bank is yet to decide the members of the team that will replace the current shareholders that ran the bank into the current mess.
The national level development bank ran into trouble after the misappropriation of funds by its directors and executives — an example of bad corporate governance. Large scale insider lending coupled with dispute among the directors led the development bank to be declared crisis-ridden by the central bank in March, 2011.
Three key promoters — D B Bamjam, Nirmal Gurung and Rakesh Adukiya — are blamed for the mess in the bank that was running well. Bamjam — who is serving a jail term for banking fraud — was the chairman when he was found to be involved in fake lending.
The central bank designated team will work in finding partners, who will buy shares of the promoters involved in the misappropriation of the bank’s fund. The current and earlier management team of the bank had also tried to bring in a strategic partner but had failed.
"Merger with other financial institutions is also possible," the source added.
Since March 2011, various attempts to revive its financial health were aborted midway, either due to a dispute between the directors or due to regulatory norms.
Two months back, the central bank had sought Gurkha Development Bank's clarification on its inability to improve its financial health. But neither did it satisfy the central bank nor improve its financial health.
The central bank is empowered to take over the management of any financial institution under NRB Act 2063 (Section 54), if it is dissatisfied with the explanation provided. If the takeover of the management also does not work then the development bank will be liquidated.
The development bank still has a total of Rs 1.5 billion bad loans and is not allowed to collect deposits.
Earlier, in May 2009, the central bank had taken over the management of Bank of Kathmandu following prolonged dispute between the bank’s directors and management. Likewise in 2006, it had taken over the management of Nepal Bangladesh Bank due to its deteriorating financial health. Both the banks are financially sound at present.
"The central bank will send a three-member team with a mandate of six months to handle the management of the development bank as a last resort to save it," a highly placed source at central bank said, adding that the board meeting late last evening decided to send a team to take over Gurkha Development Bank.
"The central bank team will take over the development bank within this week," he said. "It will try to find a strategic partner by issuing ‘Terms of Reference’."
However, the central bank is yet to decide the members of the team that will replace the current shareholders that ran the bank into the current mess.
The national level development bank ran into trouble after the misappropriation of funds by its directors and executives — an example of bad corporate governance. Large scale insider lending coupled with dispute among the directors led the development bank to be declared crisis-ridden by the central bank in March, 2011.
Three key promoters — D B Bamjam, Nirmal Gurung and Rakesh Adukiya — are blamed for the mess in the bank that was running well. Bamjam — who is serving a jail term for banking fraud — was the chairman when he was found to be involved in fake lending.
The central bank designated team will work in finding partners, who will buy shares of the promoters involved in the misappropriation of the bank’s fund. The current and earlier management team of the bank had also tried to bring in a strategic partner but had failed.
"Merger with other financial institutions is also possible," the source added.
Since March 2011, various attempts to revive its financial health were aborted midway, either due to a dispute between the directors or due to regulatory norms.
Two months back, the central bank had sought Gurkha Development Bank's clarification on its inability to improve its financial health. But neither did it satisfy the central bank nor improve its financial health.
The central bank is empowered to take over the management of any financial institution under NRB Act 2063 (Section 54), if it is dissatisfied with the explanation provided. If the takeover of the management also does not work then the development bank will be liquidated.
The development bank still has a total of Rs 1.5 billion bad loans and is not allowed to collect deposits.
Earlier, in May 2009, the central bank had taken over the management of Bank of Kathmandu following prolonged dispute between the bank’s directors and management. Likewise in 2006, it had taken over the management of Nepal Bangladesh Bank due to its deteriorating financial health. Both the banks are financially sound at present.
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