Monday, December 10, 2012

Central bank mulls options to troubled-Gurkha Development Bank takeover

Gurkha Development Bank could not satisfy the central bank as the latter is going to decide soon on the fate of troubled class B financial institute either to take over for a certain time period, call some another financial institution to buy it or send it to liquidation.
A month ago, the central bank had asked Gurkha Development Bank clarification on its 'not-improving' performance, coupled with bad corporate governance despite repeated directives. The development bank has replied the central bank this week.
"The central bank will decide either to take over the Gurkha Development Bank or send the troubled financial institution to liquidation soon," said a high ranking official at the central bank.
Dogged with multiple problems including insider lending, bad corporate governance and bitter dispute among the directors, Gurkha Development Bank has been declared troubled financial institution by the central bank on March 25, 2011 and frozen assets of the promoters too.
The central bank also had asked it to reduce its nonperforming loans to five per cent within six months but it has failed.
Despite declaring it a troubled financial institution one-and-a-half years ago, Gurkha Development Bank has still been struggling to recover its bad loans worth over Rs 1 billion.
The central bank had asked it why it failed to recover big loans worth Rs 1.13 billion to some 20 borrowers mostly in the real estate sector. The development bank has a total of Rs 1.5 billion bad loans.
The central bank had asked to submit its capital plan by June 14 but extended the time period for a week after it had decided to hand over the charges to run the financial institution to a majority stakeholder Krishi Premura Holding that has around 22 per cent share in the bank, six months ago in June.
Chairman of Krishi Premura Rakesh Adukiya was supposed to be the chairman of the bank and had planned to reconstitute the board and restructure it with issuing rights shares and finding strategic partners to increase the paid-up capital. But the central bank and promoters of the bank did not accept Adukiya as the chairman. Likewise, the development bank could neither bring strategic partner nor restructure it as it needs some Rs 1 billion to turn the development bank into a healthy financial institution.
One of the key promoters of the class B financial institution is still serving jail term for banking fraud, whereas two others got bail.

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