Central bank declares NDB troubled bank

Central bank declares NDB troubled bank
eKantipur.com, 10-Oct-07
BY KRISHNA REGMI

Nepal Rastra Bank (NRB) Wednesday declared Nepal Development Bank (NDB) as a troubled bank and decided to intervene into its operation to protect depositors' interest and salvage it.

The central bank's move bars the Development Bank from issuing loans and advances, and freezes its asset transactions, said a highly-placed source at the NRB.

Even as such declaration normally does not allow the bank from mobilizing deposits, the bank would still be able to collect deposits owing to a sub judice case at the court.

"The NRB board of directors meeting today took the decision to safeguard further erosion of Development Bank's financial health," said the source. The central bank took the decision after the bank's resistance to NRB's past reform initiatives sharply eroded its financial health.

NRB had been closely scrutinizing the bank's activities after its report for fiscal year 2005/06 revealed that the bank's capital fund was in the negative by Rs 218 million. And, its per share value was negative by Rs 148. Of the total investment of Rs 623 million the bank made till then, around 85 million rupees was in non-performing loans.

The central bank issued various directives to the bank and even imposed a restriction for deposit mobilization. However, the bank produced a stay order on those decisions. In May, NRB had directed the bank to remove its Chairman, Uttam Pun, but the bank refused to comply.

Despite the problems, the bank had launched a deposit scheme, offering high interest rates up to eight percent to lure customers. The bank presently has around Rs 1.5 billion in deposit, including Rs 650 million from Nepal Provident Fund and Rs 450 million from Nepal Army.

The government has already asked the public sector institutions to withdraw their deposits after maturity from all banks having negative net worth.

This will compel both the depositors to take out their deposits from this troubled bank, thus steeply reducing its deposit base.