Central Bank Takes Swift Action: Penalties Imposed on Development Banks and Finance Company
Nepal Rastra Bank (NRB) has taken regulatory actions against five development banks and finance companies within the first quarter of the ongoing fiscal year.
As of the end of Ashwin, the Central Bank has imposed penalties on four development banks—Garima Bikas Bank (GBBL), Excel Development (EDBL), Karnali Development (KRBL), and Sindhu Bikas Bank (SINDU)—and one finance company, Reliance Finance (RLFL). The penalties were in response to various violations of rules and laws outlined by the Central Bank.
The Central Bank disclosed that Excel Development Bank had neglected to conduct a thorough analysis of loan details, including the purpose, area of utilization, interest repayment basis, and loan amount distribution to unrelated entities. Consequently, the bank faced fines for misusing the loan amount and failing to exercise due diligence in the loan approval process.
Garima Bikas Bank, on the other hand, is under a one-year prohibition from holding or transacting securities following its involvement in providing share mortgage loans within a year after the former chairman of Kalika Microfinance Financial Institution resigned. This action aligns with the provisions of the Banking and Financial Institutions Act, 2073.
Karnali Development Bank received two reprimands from the Rastra Bank. The former CEO, Dinesh Kumar Rawat, was fined for serious violations of the Central Bank's instructions, acting against the interests of the institution, investors, depositors, and the public. The then chairman, Rajendrabir Rai, faced penalties for similar violations and indirect loan grants, both against the directives of the Nepal Rastra Bank.
Sindhu Bikas Bank faced dual actions due to its weak internal audit and operational risk management practices. The board of directors and various committees were alerted, as the institution's internal control system was found to be unsatisfactory and overall very weak.
Reliance Finance Company, targeted twice by the Rastra Bank, was penalized for disbursing loans over the debtor's business capacity, unsatisfactory loan projects, and misuse of funds. The board of directors and the director committee of Reliance Finance were notified under section 100 of the Nepal Rastra Bank Act, 2058.
Moreover, Reliance Finance's Chief Executive Officer, Samaj Prakash Shrestha, received a notification for recommending loan approval without proper inspection of mortgages, leading to misuse of funds against the interest of depositors and the intended project. The actions taken by the Nepal Rastra Bank aimed to address these regulatory violations and ensure the integrity of the financial institutions involved.
