Central bank declares General Finance crisis-ridden

The central bank has declared General Finance a crisis-ridden financial institution as its financial health worsened due to its failure to follow Nepal Rastra Bank’s directives issued some eight months ago.

According to the central bank, lack of internal control management, good corporate governance, prudential banking norms and weakness in risk management have made the finance company a troubled financial institution.

The class C financial company’s capital fund has turned negative by 16.83 per cent as of mid-April 2013, from a negative of 8.73 per cent a year ago, according to the central bank that claimed that it was a clear indication of the company’s failure in following the central bank’s directives.

The company has Rs 184.57 million NPL, an additional Rs 5.22 million was lent by breaching the single obligor limit, apart from Rs 41.45 million insider lending against Bank and Financial Institution Act (BAFIA).
Nepal Rastra Bank had during its supervision reduced these amounts from the core capital of the company last year.

The central bank has also issued a 13-point directive to General Finance. It has asked the company to maintain capital fund according to the Nepal Rastra Bank’s directives, barred deposit collection and lending, reduce non-performing loans to five per cent, not to increase salary and facilities to board members and employees, not to distribute dividend, carry out a due diligence audit and get financial transactions audited, apart from banning it to open new branches.

The finance company also has asked it to take prior approval before making payment of more than Rs 200,000 and selling its fixed assets.

However, the central bank is still hopeful of the recovery of the finance company, if its directors repay their loans. As a precaution, the central bank had blocked the accounts of 13 officials – including its chairman Upendra Narayan Shrestha, directors Kishor Kumar Maharjan, Krishna Prasad Shrestha, Kapoor Prasad Vaijoo, Bipin Timla, Mahendra Prasad Shrestha and Sidhi Das Sayami, chief executive Prakash Kumar Dhungana and GM Raju Kumar Pradhan – and clients of the company, including all of the board members and top management.