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Kathmandu Wednesday December 19, 2001 Paush 04, 2058.
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NRB to get tough on commercial banks
Depositors’ interest, economy not to be hurt
By Ram Sharan Sedhai & Bijaya Ghimire
KATHMANDU, Dec 18 - Nepal Rastra Bank (NRB), the central bank, has enlisted
most of the commercial banks against which it is set to take action for violating the
directives, rules and regulations that govern commercial banks.
NRB prepared the list of these commercial banks after monitoring their
activities. The list has been submitted to the governor and in case some complex problems
arise, they are to be resolved by the meeting of the NRB board of directors, said a
source.
Board of directors of those commercial banks who have borrowed an amount far
bigger than their investment in the banks, and banks functioning as private companies
despite being licenced as public limited, are some of those which will face punitive
action. There are also banks which have flouted the directives of the central bank despite
repeated warnings.
However, depositors’ interests, and the overall national economy, would
not be affected while measures are taken against these banks. The step is being taken with
a view to ensuring depositors’ interests and cultivating a healthy banking system,
said a high-level source at the NRB.
The existing laws do not allow any board member to borrow from their
respective banks, but some of them have been borrowing huge amounts under different names,
says an official of a commercial bank.
However, the enlisted banks will be given a chance for clarification before
bringing them to the book. The NRB has already sent some warning letters and some are in
the process.
Governor Dr Tilak Rawal talking to The Kathmandu Post recently had said that
the central bank would get tough on those commercial banks which are not functioning as
per banking directives, rules and regulations.
International financial institutions like the World Bank and the
International Monetary Fund (IMF) have been saying that the monitoring mechanism of
Nepal’s central bank has remained weak.
The inspection committee has recommended to forbid dividends distribution, to
bar collecting deposits and investments, and to halt all banking transactions. It has also
suggested revoking even the licence of some of the banks depending on their degree of
violation.
"Annulling the licence is an unpopular step and we wish banks do not
create a situation in which we will be forced to cancel their licence. However, the number
of such banks is almost non-existent," said the source.
According to the source, except for Standard Chartered, Nepal Indosuez and
one more private commercial bank, all the rest are in the hit list. But only mild action
awaits most of the banks.
Altogether 15 commercial banks are in operation now.
The central bank took action against the Lumbini Bank a couple of weeks ago.
More recently, the NRB had barred two banks from distributing their dividend and bonus on
the ground that they had not did not have the required paid-up capital of Rs 500 million.
Further, the NRB last week published a notice asking some banks not to issue
public shares as per their commitment.
Nepal Bank of Ceylon, Lumbini Bank, Kumari Bank and Machhapuchchhre Bank have
not issued public shares yet.
The central bank began pushing forward with the monitoring process after KPMG
Barnett, an international auditing firm, announced the Rastriya Banijya Bank and the Nepal
Bank Limited, the two major commercial banks with government stake, as "technically
insolvent" some one and a half year ago. Then the central bank began closely
monitoring the private commercial banks too.
The central bank had introduced directives to commercial banks since this
fiscal year, with a view to better manage the commercial banks. Though the NRB is adopting
a more flexible monetary policy in the present situation, this does not mean that the
directives would be removed, said an NRB official.
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