Another FI to choke on liquidation dust: United Development Bank crisis-ridden for the second time

KATHMANDU, FEB 08 -

Not even two years have passed since the liquidation of Nepal Development Bank and the Nepal Rastra Bank (NRB) has decided to start the liquidation process of another troubled financial institution—Samjhana Finance.

The central bank’s board on Monday decided to ask the finance company to submit a clarification within 15 days on why it should not be liquidated. If the company fails give a satisfactory clarification, the NRB will seek an Appellate Court order for liquidation.

The central bank came up with this decision after the 15-year-old institution failed to recover from its financial crisis within the deadline set by the central bank. Financial condition of the company had worsened due to its promoters’ malpractice. It was declared crisis-ridden on June 10, 2010.

As per the Bank and Financial Institution Act, savings depositors will be given first priority to withdraw their deposits after liquidation expenditure. Then follow fixed depositors, other depositors, tax and fees, loans taken from the NRB, employees’ salary and benefits and finally shareholders.

The company currently has outstanding loans worth Rs 285 million and deposits of Rs 220 million in open accounts, according to the Due Diligent Audit (DDA) report. DDA had also found hidden accounts of deposits and credits. The institution has additional deposits of around Rs 200 million and loans worth Rs 100 million in hidden accounts.

However, a senior official of NRB said depositors should not worry as their deposits could be recovered by selling collaterals whose price has gone up compared to a few years ago.

Institutional depositors such as Nepal Army Welfare Fund and Nepal Sahakari have around Rs16.9 million and 50 million, respectively, deposited in the finance company. However, Samjhana officials say they do not have any records of their deposits.

Major promoters’ involvement in taking loans for themselves and their kin against the banking norms led to the Banepa-based finance company’s collapse.

One of the promoters, Pawan Khanal and his group, had taken loans worth Rs 250 million from both public and hidden accounts of the finance company. According to a director of the company, the collateral he has put up is worth just Rs 130 million.

Even after the central bank banned the finance company from collecting deposits and providing credit seven years ago, the company continued to collect deposits and provide loans, particularly to promoters who were close to the board of directors.

With the revelation of hidden transactions, its net worth has gone negative by over Rs 400 million.

Initially, it was declared that its net worth was negative by Rs 100 million.


United Dev Bank declared crisis-ridden

KATHMANDU: The Nepal Rastra Bank (NRB) on Monday declared United Development Bank crisis-ridden for the second time. It was also declared crisis-ridden four years ago, but the NRB lifted the status a year ago after its non-performing loans came down and capital status improved. Although its financial status is not so worse now, the central bank declared it crisis-ridden due to ‘risky behaviour’ of its promoters. They were found taking loans against banking norms and the Bank and Financial Institution Act. As of mid-July 2010, United had deposits of Rs 88.4 million and loans of Rs134.1 million. It has also been flouting the NRB directive for issuing public shares. A month ago, the NRB had sought clarification from the three district-based development bank. After its response failed to satisfy the NRB, it was again declared crisis-ridden. “NRB took action against the bank due to malpractice of its promoters,” said a NRB source. (PR)

Posted on: 2011-02-08 09:19
Source:http://www.ekantipur.com/2011/02/08/business/another-fi-to-choke-on-liquidation-dust/329287.html