Gurkha Development Bank depositors can withdrawal money

Gurkha Development Bank has finally said that its depositors can now withdraw their deposits starting from Sunday.
The development bank – that had run into trouble due to lack of good corporate governance and misappropriation of funds by its directors and executives since March 2011 – had only allowed a minimum deposit withdrawal for the last two years after its financial mismanagement was revealed. The central bank had declared troubled-institution in March, 2011.

According to the class 'B' financial institution, depositors with less than Rs 50,000 balance can withdraw all the excess balance above the minimum requirement, whereas those with deposits between Rs 50,000 and Rs 1 million can withdraw 50 per cent of the total deposit held at on one go.
However, after that they can only withdraw half of the remaining balance every fortnight.

Likewise, people with deposits of more than Rs 1 million can withdraw up to Rs 500,000 and the remaining balance can be withdrawn after coordinating with the bank.
The national level development bank has deposits worth Rs 2.09 billion, as of the end of the third quarter and it has floated loans worth Rs 1.93 billion during the period. However, the bank’s capital fund is negative by Rs 1.05 billion.

The central bank team is managing the development bank since the last six months. Though the bank has called for a strategic partner twice, no was seems interested in engaging with the team that has no corporate ethics. However, former Gurkha soldiers, who are the key promoters, have started injecting the capital to resurrect the development bank.

Gurkha Development Bank seeks investors

Gurkha Development Bank has called for interested investors to purchase shares from existing promoters.

The management team deployed by Nepal Rastra Bank (NRB) is publishing a notice inviting interested entities to buy the bank’s shares and inject capital tomorrow. The new investors will require to achieve the NRB prescribed capital adequacy and to minimise the dominance of the existing promoters.

The central bank had sent a three-member team under NRB deputy director Bisrut Thapa including deputy director Mukti Sapkota and assistant director Ashok Kumar Rai in early January to oversee the management of the troubled bank.

The team’s major work was to improve the bank’s financial health and to find a replacement for the existing 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. The bank’s bad corporate governance, large scale insider lending among directors, and dispute among the directors got the bank declared troubled by NRB in March, 2011.

Three key promoters — DB Bamjam, Nirmal Gurung and Rakesh Adukiya — have been blamed for the trouble in the bank that was running well. Bamjam was the bank's chairman when he was found to be involved in fake lending and is serving a jail term for banking fraud.

The notice says that only those interested parties that have never been involved in any banking crime are eligible to apply within the next 35 days with their plan.

Since March 2011, various attempts made by the bank to revive its financial health was aborted mid-way — either due to disagreements between directors or due to disapproval of the regulator.

The 'B' class financial institution still has a total of Rs 1.5 billion bad loans and is not allowed to collect deposits. The ailing development bank will go under liquidation if things do not work out once again.

Central bank to take over Gurkha Development Bank

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.

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.

Krishi Premura to take charge of Gurkha Development Bank

The troubled Gurkha Development Bank seems to have escaped liquidation.
"The class 'B' development bank will send the minutes of today's meeting that has decided to hand over its charge to majority stakeholder Krishi Premura Holding which has around 22 per cent share in the bank," said managing director of the bank Amod Domzone. However, according to the central bank rule, a shareholder can have only 15 per cent share in a financial institution.
Chairman of Krishi Premura Rakesh Adukiya will be the chairman of the bank, he said, adding that he will reconstitute the board, issue rights shares and find strategic partners to increase the paid-up capital, according to the central bank's diktat.
The promoters have to inject Rs 320 million to rescue Gurkha Development Bank that had been earlier asked by the central bank to submit its capital plan by June 14, but extended it by a week till today.
Nirmal Gurung, one of the three key promoters with six per cent stake also supported Adukiya along with the minority promoters. Another key promoter DB Bamjan — who has 14 per cent stake — is serving a jail term for banking fraud but he could also send a representative to the board.
The bank had called a meeting of the promoters today to decide who should lead the bank and to escape liquidation. "Adukiya will now submit a capital plan to the central bank," said Domzone, adding that the promoters will have 51 per cent share after the rights issue.
"Bamjan also agreed to allow Adukiya to run the bank," he said, adding that Gurkha Development Bank requires around Rs 1 billion to recover its financial health.
The central bank had declared Gurkha Development Bank a troubled financial institution on March 25, 2011 and frozen the assets of the promoters too.
After the deadlock lengthened, chief executive officer of the bank Krishna Kumar Bhattarai had resigned from his post last month.
The Nepal Rastra Bank (NRB) had asked Gurkha Development Bank to come up with a workable capital plan by mid-June, and the bank was exploring three options — issuing rights shares, one majority shareholder purchasing stake of other two promoters and a third party injecting capital.
Bhattarai was appointed chief executive of the troubled bank last year with a mandate to bring reforms in the bank after its top management and board members faced charges under the Banking Offense Act.

Central bank seeks action against Gurkha Development Bank's former chiefs, board members

The central bank sought Nepal Police help to nab former executive chairman D B Bomjan and board members Ramesh Tamang, Meena Shrestha, Nirmal Gurung, Dhan Prasad Rai, Mahesh Prasad Rijal, Sanjeev Kumar Mishra and Dinesh Shakya of troubled Gurkha Development Bank.
From the central bank’s primary investigation, it is found that they were involved in lending irregularities leading to deterioration of the development bank´s financial health.
“We have asked Nepal Police to arrest former board members and executive of Gurkha Development Bank,” said Nepal Rastra Bank spokesperson Bhaskar Mani Gyawali.
The board meeting of the central bank held on Tuesday decided to take action against those involved in irregularities while issuing loans, causing loss to the bank, as per the Banking Offense and Punishment Act.
Those involved in irregularities also include former general manager Rajendra Das Shresha, chief credit officer Dipak Rana Magar, former board member Prabin Naulakha and managing director of Mentha Products Rakesh Kumar Adukiya.
If proven guilty, they will be sent to prison for for three years, apart from fines, according to Banking Offense and Punishment Act.
NRB has also sought action against borrowers Jiban Ghimire and Sanjeev Kumar Agrawal. They are loans defaulters and were found to have taken loans through unfair means.
The central bank has also asked the police to investigate and take action against Ruchi Jadojia and Punam Khetan, directors of Krishi Pemura -- an institutional investor in the bank -- for their suspected involvement in irregularities.
However, it is doubted that the police can arrest them as the police has failed to arrest chairman of liquidated Nepal Development Bank.
Had the police been able to arrest Pun and sent him behind the bar, others would not have dared to cheat bank, a high level central bank official said.
Though, the central bank has also requested the government to freeze passport, bank accounts, lockers, saving certificates, fixed and current assets and shares of Ghimire, Agrawal, Jadojia, Khetan, Shrestha and Naulakha, it is highly suspected that the police could act against them.
Gurkha Development bank has been declared a troubled bank more than a month ago, due to its poor governance and subsequent deterioration of its financial health. However, the development bank has elected new board of directors and started its operation after almost a month’s closure.