People’s executive chairman found involved in Rs 450m fraud

KATHMANDU, JUN 08 -

It has been revealed that People’s Finance Executive Chairman Chhabilal Bhusal was involved in large-scale misappropriation of funds leading the institution into crisis.

According to central bank sources, Bhusal has been found to have embezzled more than Rs 450 million by taking loans for himself in the name of more than a dozen of persons. Land in Dahachowk, Kathmandu, and Arghakhanhi has been put up as collateral to get the loan, said the source.

As the Bank and Financial Institutions Act (BAFIA) bars promoters of banks and financial institutions (BFIs) form taking loans from their own institution, they usually use third parties for the purpose.

According to a senior NRB official, Bhusal has made huge investment in real estate with loans from the company. Bhusal is currently out of contact. He had left Kathmandu last week in the pretext of arranging funds.

After the Monday’s incident, the central bank has assigned a team to ascertain what actually had happened to the 17-year old financial institution.

As the company failed to recover loans from the realty sector, its liquidity situation worsened. On Monday, it was unable to payback deposits to its depositors. The company had only Rs 2.7 million in cash and bank balances.

As of May, the company’s lending stood at Rs 950 million. Out of the total loans, about 55 percent have been issued to the real estate sector. According to NRB officials, the finance company’s relentless lending surpassing its deposits resulted in poor liquidity prevalence. It made long-term lending while taking short-term deposits in call accounts.

People’s Finance held deposits amounting to Rs 890 million against loans of Rs 1.09 billion as of mid-April.

The finance company was struggling to put together cash to pay back deposits of Nepal Rastra Bank and Rastriya Beema Sansthan amounting to Rs 70 million and Rs 30 million respectively which are due to mature in mid-June.

The chairman of People’s Finance left Kathmandu on the pretext of generating resources to pay back their fixed deposits and disappeared. He did not turn up at the office on Monday as he had promised.

“It is also a case of how a financial institution becomes vulnerable without a strong individual depositors’ base,” said a senior NRB official.

Out of the Rs 890 million in deposits held by People’s Finance, Rs 390 million came from institutional depositors.

The finance company had little chance of getting adequate refinancing facility from the central bank as it does not consider realty loans as good loans for use as collateral. People’s Finance has a deposit of Rs 30 million in Gurkha Development Bank which has been declared crisis-ridden, and it cannot hope to recover its money from there. “Such a situation led the finance company to close down instead of continuing operations,” said the central bank official.

People’s Finance has also borrowed Rs 30 million from Ace Development Bank and Rs 20 million from Tourism Development Bank. As of mid-July last year, its key financial indicators were good enough with its non-performing loans at just 3 percent and a capital adequacy ratio of 27 percent.

Posted on: 2011-06-08 09:07
PRITHVI MAN SHRESTHA, http://www.ekantipur.com/2011/06/08/business/peoples-executive-chairman-found-involved-in-rs-450m-fraud/335352.html