KATHMANDU, MAR 16 - 2012
As it prepares to amend the NRB Act 2002, the central bank is seeking greater authority for itself when it comes to liquidating insolvent banks and financial institutions (BFIs).
As per the initial draft of the bill, the Nepal Rastra Bank (NRB) will seek a court order for liquidation of a BFI only after a team appointed by the central bank manages the BFI’s assets and liabilities.
As per the existing NRB Act and Bank and Financial Institution Act, the task of managing assets and liabilities of a BFI to be liquidated is carried out by the liquidator appointed by the court.
The Nepal Rastra Bank (NRB), however, is not ready to accept the suggestions of the International Monetary Fund (IMF) that say that the central bank should itself be empowered to liquidate insolvent BFIs instead of going to the court to determine viability of insolvent BFIs.
In its report published in November 2011, the IMF has said that the current provision of requiring a court order to determine a BFI’s viability delayed action by months and caused forbearance in the full application of the prompt corrective action framework. Therefore, the IMF has sought the intervention power for NRB subject to review only if the central bank’s decisions were found arbitrary. The IMF had said that the authority given to NRB did not match international standards and it should be given more power by amending the existing laws.
According to the draft, the central bank will form a team of experts from banking, accounting and law to restructure BFIs, if possible, or manage assets and liabilities before sending to them liquidation. “The same team will be responsible for asking the court to liquidate the BFI concerned after doing its utmost to recover assets and pay liabilities,” said an NRB official.
As per the clause 86 (G) of the NRB Act 2002, the central bank can apply to the Appellate Court for dissolution of an insolvent BFI after ascertaining that there are no possibilities for turning the BFI healthy even after carrying out prompt corrective action and other actions initiated after delclaring the BFI crisis-ridden. “As the current provision allows BFIs concerned to recover on its own under strict conditions and guidance of NRB, the bill being drafted provisions that the central bank-appointed team will carry out the job,” said the NRB official.
The official said their decision not to bypass the court for liquidation as suggested by IMF is to avoid any possible legal hurdles that the NRB-appointed team may face in the event that all liabilities could not be cleared. “Therefore, seeking a court order in the final stage will not only remove such hurdles, but also make the liquidation process shorter,” he said.
Nepali financial sector has so far witnessed liquidation of two financial institutions-Nepal Development Bank and Samjhana Finance.
The liquidation of process of NDB that started in 2009 has not concluded yet, while Samjhana’s liquidation is yet to begin although it has been several months since the central bank applied to the Appellate Court for its liquidation.
Source: Kantipur
As it prepares to amend the NRB Act 2002, the central bank is seeking greater authority for itself when it comes to liquidating insolvent banks and financial institutions (BFIs).
As per the initial draft of the bill, the Nepal Rastra Bank (NRB) will seek a court order for liquidation of a BFI only after a team appointed by the central bank manages the BFI’s assets and liabilities.
As per the existing NRB Act and Bank and Financial Institution Act, the task of managing assets and liabilities of a BFI to be liquidated is carried out by the liquidator appointed by the court.
The Nepal Rastra Bank (NRB), however, is not ready to accept the suggestions of the International Monetary Fund (IMF) that say that the central bank should itself be empowered to liquidate insolvent BFIs instead of going to the court to determine viability of insolvent BFIs.
In its report published in November 2011, the IMF has said that the current provision of requiring a court order to determine a BFI’s viability delayed action by months and caused forbearance in the full application of the prompt corrective action framework. Therefore, the IMF has sought the intervention power for NRB subject to review only if the central bank’s decisions were found arbitrary. The IMF had said that the authority given to NRB did not match international standards and it should be given more power by amending the existing laws.
According to the draft, the central bank will form a team of experts from banking, accounting and law to restructure BFIs, if possible, or manage assets and liabilities before sending to them liquidation. “The same team will be responsible for asking the court to liquidate the BFI concerned after doing its utmost to recover assets and pay liabilities,” said an NRB official.
As per the clause 86 (G) of the NRB Act 2002, the central bank can apply to the Appellate Court for dissolution of an insolvent BFI after ascertaining that there are no possibilities for turning the BFI healthy even after carrying out prompt corrective action and other actions initiated after delclaring the BFI crisis-ridden. “As the current provision allows BFIs concerned to recover on its own under strict conditions and guidance of NRB, the bill being drafted provisions that the central bank-appointed team will carry out the job,” said the NRB official.
The official said their decision not to bypass the court for liquidation as suggested by IMF is to avoid any possible legal hurdles that the NRB-appointed team may face in the event that all liabilities could not be cleared. “Therefore, seeking a court order in the final stage will not only remove such hurdles, but also make the liquidation process shorter,” he said.
Nepali financial sector has so far witnessed liquidation of two financial institutions-Nepal Development Bank and Samjhana Finance.
The liquidation of process of NDB that started in 2009 has not concluded yet, while Samjhana’s liquidation is yet to begin although it has been several months since the central bank applied to the Appellate Court for its liquidation.
Source: Kantipur
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