Tuesday, June 4, 2019

Civil Saving and Credit Cooperatives faces bank run

Civil Saving and Credit Cooperatives is facing a liquidity crunch after mass withdrawals by depositors. The Pokhara-based cooperatives today appealed other cooperatives to bail it out as it has faced bankruptcy due to mass withdrawal. The bank run in the cooperatives started after the media reports of its imminent collapse, the cooperatives said, organising a press meet, today.
Civil Saving and Credit Cooperative – operated by the Civil Group led by Ichchha Raj Tamang – today accepted that its cash flow had dried up. “We are not fully bankrupt but we are facing a liquidity problem due to mass withdrawal after multiple media reports,” said chairman of the Civil Group, who is also the founder of Civil Cooperative, Tamang.
Though Tamang – in the press meet – claimed that the cooperative has not violated government laws, the Civil Saving and Credit Cooperatives has lent huge amount to its operators, which is against the Cooperative Act 1992. The Act bars cooperatives from issuing more than 20 per cent of its loans to an individual borrower. Tamang, however, claimed that the cooperatives has started reforms by diversifying the business. “Civil Saving and Credit Cooperatives is now investing in hydropower, information technology and the hospitality business,” he said, refuting the charges that the cooperative had conducted financial dealings with Civil Bank, a commercial bank operated by the group.
The cooperative – which has also investment of Rs 140 million by the National Cooperative Bank – had overexposed itself in the real estate, hotel and hydropower sectors, which dried up its liquidity.
The Civil Group has investments in 21 different types of businesses. But the cooperative has exposed its investment in a single sector in Civil Homes – a housing company that is currently working on its ninth project in Godavari – that has sold more than 1,000 units of standalone houses and apartments. “The cooperatives has invested around 90 per cent of its deposits totalling to Rs 7.5 billion in the realty business operated by the group,” informed the sources in the cooperatives that according to them, the cooperatives has faced the liquidity problem also due to lack of good governance practice.
The cooperative department under the Kathmandu Metropolitan City has urged Civil Saving and Credit Cooperative to implement corrective measures in time or the department will be forced to take action against it. The department has also asked the cooperative to create a three-year plan to revise its portfolio management and launch other measures to avoid going into liquidation.
Recently, some of the cooperatives have been facing liquidity crunch – something like it happened a decade ago – and the government has declared some 11 cooperatives including Societal Saving and Credit Cooperative a ‘troubled institution’ due to unsound lending practices, exposure to the volatile real estate market and embezzlement by their promoters.
There have been some 130 crisis-ridden cooperatives misappropriating at around Rs 11 billion of people’s savings, according to report prepared by a commission headed by Gauri Bahadur Karki some five years ago. “Most of the crisis-ridden cooperatives, including Oriental Cooperative that alone embezzled around Rs 5.5 billion, landed in trouble because of their board members’ involvement in misappropriation, and huge exposure in the realty sector,” the report reads.

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