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Kathmandu Tuesday May 22, 2001 Jestha 09, 2058.
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Four RDBs
technically insolvent
By Bijaya Ghimire & Bal Krishna
Gyawali
KATHMANDU, May 21 - Four of the five Rural Development
Banks (Grameen Bikas Bank - RDB), formed almost seven years back jointly by the
government, Nepal Rastra Bank (NRB) and private commercial banks to extend micro-credit at
the grassroots level, are technically insolvent, latest financial report reveals.
The findings are those of a committee that was formed by
the NRB to study the financial position of the RDBs. According to the report prepared by
the committee, managerial weaknesses and political interference, in addition to low debt
recovery, nil loan provisioning and overstaffing, among others, are the main reasons that
led the banks to insolvency.
According to a source at the NRB, four of the five RDBs, as
of mid-July 2000, had cumulative losses of over Rs 137 million. The report reveals that
out of the total capital of Rs 60 million of the Eastern Regional RDB, the first to be set
up, Rs 57 million had already eroded by mid-July 2000. Similarly, of the total Rs 58.5
million capital, Far Western RDB had washed out Rs 5.38 million. "The present losses
would be far higher. If immediate reforms are not initiated, all RDBs would better be
closed," the source said.
Similarly, Mid Western RDB and Central RDB had eroded its
capital by Rs 14.4 million and Rs 9.91 million respectively. Though the Western RDB has
been showing profits to date, the reason for such, says another high level NRB source, is
the manipulation of accounts taking advantage of the weak policies.
The report has pointed that the RDBs need structural
reforms. Providing an example of sheer negligence and irresponsibility, the report points
that within a period of four years, the term period for a management team comprising of
eight members each, RDBs have had as many as 21 different members in the Board of
Directors.
To prevent the collapse of the banks, mergers or capital
restructuring or privatization is a must, the report has stressed. As per the
report’s suggestions, the NRB is working to merge the Far Western and Mid-Western
RDBs. The report has further stressed that a committee needs to be constituted for
monitoring purposes, in addition to capital injection.
Though the RDBs tried to obtain credit from commercial
banks, all commercial banks have refused to inject additional funds for operation. The
previous credit from the commercial banks have already crossed over a billion rupees.
Commercial banks had granted credit merely to fulfill the NRB’s condition that
requires them to invest at least 12 per cent of their total loan portfolio in priority
sector and three per cent of it to the deprived class.
And even the Rural Micro-finance Development Center (RMDC),
which was formed with the objectives of extending financial assistance to weak banks and
financial institutions, refused to extend credit to the RDBs, despite repeated requests,
given their weak financial position.
Executive Director of RMDC Shankar Man Shrestha said that
RMDC extends credit based upon the overall financial position, management and possibility
of repayment. However, he said that the RMDC would not be able to finance the RDBs despite
RMDC’s willingness to extend credit to almost 50 financial institutions in the coming
fiscal year.
"We cannot give credit to institutions having negative
net worth," he clarified, asserting his refusal to finance the RDBs. It was only
after commercial banks refused to extend loans to RDBs that the later requested the RMDC
for financial support. As per sources, the NRB has requested the Ministry of Finance to
allocate funds of over Rs 200 million in the coming budget for capital restructuring of
the RDBs.
The financial insolvency of the RDBs have come to light
hardly a year after two of the biggest commercial banks of the country, namely Rastriya
Banijya Bank and Nepal Bank Limited, were declared technically insolvent. The bankruptcy
of the RDBs is a major blow to the government’s financial sector reforms, which was
initiated in 1992.
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