Central bank fails to punish loan misusers: Auditor General

The Auditor general has officially confirmed loan misuse by some high profile borrowers but blamed the central bank for not punishing them. Earlier, the central bank had also suspected of capital flight by some borrowers by misusing loan.
Some of the borrowers have misused loans, stated the 52nd Annual Report of the Office of the Auditor General published here today. Giving examples of how loans taken for one purpose have been used for another, the annual report asked the central bank to take action against them. The report has, however, not named the borrowers.
The report said that a 'Maker Pvt Ltd', borrowed some Rs 306 million but it didnot use a single penny for the purpose. "However, the central bank did not take any legal action against the borrower,” the report stated, adding that the regulator should control such practice.
According to the Banking Offence Act, loan misuse is a punishable act that attracts a maximum jail term of five years.
The report has documented some eight examples of loan misuse by taxpayers under the Big Taxpayers’ Office. Likewise, some three borrowers registered under the Inland Revenue Office, Lalitpur have also misused the bank loans.
The central bank during its regular supervision had suspected some loan misuse, central bank spokesperson Min Bahadur Shrestha said, adding that the central bank has then brought the new watch-list in loan loss provision to curtail the practice.
Though, the central bank, suspecting the loan misuse, has recently added a watch-list under loan-loss provisioning, for suspicious loan, with five per cent provisioning in phase-wise manner, the move is yet to bring result. The bankers have to provision two per cent in the last quarter of the current fiscal year 2014-15 and raise it by 0.5 per cent every quarter to five per cent by mid-January 2017.
The bankers, however, claimed that the borrowers are taking advantage of the interest rate difference between Nepali and Indian banks. "They borrow from Nepali banks and deposit in Indian banks, and enjoy interest rate," a banker said, without wanting to be named.
Indian banks are offering nine percent interest on deposit, whereas Nepali banks are offering loans at maximum seven per cent.
The borrowers are taking short-term loans from Nepali banks and deposit the money in Indian banks where the interest rate is higher,” he said, adding that the borrowers are making profits without investing and taking any risks.