KATHMANDU, Jan 2:
Despite more than Rs six billion worth of deposits still stuck at troubled financial institutions, the central bank has yet to take any concrete action to decide on their fate.
The eight crisis-ridden financial institutions — one development bank and seven finance companies — had total deposits worth Rs 6.87 billion as of mid-October. Though it has been seven months since the last finance company was declared problematic, Nepal Rastra Bank has not yet taken any definite step to either revive or close them down.
General Finance was the last to be declared problematic by NRB back in
May, 2012, while Gurkha Bikas Bank was declared problematic in March, 2011. The eight crisis-ridden financial institutions — one development bank and seven finance companies — had total deposits worth Rs 6.87 billion as of mid-October. Though it has been seven months since the last finance company was declared problematic, Nepal Rastra Bank has not yet taken any definite step to either revive or close them down.
General Finance was the last to be declared problematic by NRB back in
“Though it may not be visible but NRB has been monitoring the situation at these problematic declared financial institutions and has taken necessary steps to avoid any further deterioration,” informed spokesperson for NRB Bhaskar Mani Gyanwali.
Though depositors are allowed to withdraw money from the financial institutions declared as crisis-ridden, NRB does not allow withdrawal of large sums. The deposits at these financial institutions have depleted considerably since they were declared troubled. In mid-March 2013, deposits at these financial institutions stood at Rs 8.7 billion — excluding that of General Finance.
At the same time, capital funds of six financial institutions have become worse, indicating further weakening of the financial institutions.
The central bank declares financial institutions that are in near-insolvent state with more bad loans as problematic. Those that are declared problematic are not allowed to collect or renew deposits or provide loans, and recruit new staff till they get their financials straightened out — manage prescribed capital fund and bring bad loans below five per cent, among others. If they cannot bring their act together for a long time, NRB has to recommend liquidation as the ultimate option.
“As a regulator, it is in our interest to try to revive troubled financial institutions so we do not give up easily,” pointed out Gyanwali, adding, “But if the situation of the institution is beyond possible recovery then we take the extreme step of liquidation.”
NRB has been running Gurkha Bikas Bank after taking its management in January, 2013.
Among the troubled finance companies, Gurkha Bikas Bank’s balance sheet shows the highest amount of deposits worth Rs 1.84 billion till mid-October. Likewise, General Finance has the least deposits at Rs 278 million by the review period.
So far, NRB has declared 11 financial institutions as crisis-ridden among which two — Nepal Bikas Bank and Samjhana Finance — are already under liquidation while United Bikas Bank is also facing imminent liquidation.
Almost all the financial institutions have run into trouble for their involvement in insider lending during the real estate boom pre-2010. Once the central bank imposed the cap on real estate loans, the misdeeds of the financial institutions unravelled.
Source: THT
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