NRB Labels Karnali Development Bank a 'Problematic Institution'; Trading Suspended in NEPSE
Nepal Rastra Bank (NRB) has declared Karnali Development Bank Limited, located in Nepalgunj, Banke, as a 'problematic institution.' The decision was made during yesterday's board meeting of NRB, invoking Section 86(b) of the Nepal Rastra Bank Act, 2058. Additionally, the bank's management has been placed under the direct control of NRB as per Section 86(c) of the same Act until further arrangements are made. Following this decision, the share trading of Karnali Development Bank has also been suspended on the Nepal Stock Exchange (NEPSE).
To oversee the management of the bank, a three-member management committee has been formed under the leadership of Tikaram Khatri, Deputy Director of the Bank and Financial Institution Regulation Department. The committee includes Bishnukumar Bishwakarma, Deputy Director of the Financial Institution Supervision Department, and Jugal Kishor Kushwaha, Deputy Director of the Legal Division. The team will assume its responsibilities starting Poush 11, 2081 (December 26, 2024).
Reasons for Declaring the Bank Problematic:
According to NRB, the following factors led to the decision:
- Failure to maintain the minimum required capital adequacy ratio.
- Weak institutional governance.
- Suspected financial irregularities.
- Poor liquidity management.
- Inability to meet deposit obligations.
- The non-performing loan (NPL) ratio reached 40.85%.
NRB stated that allowing the bank to operate under its current condition would not safeguard depositors' interests and could undermine public trust in the banking system.
Responsibilities and Powers of the Management Committee:
The newly appointed management committee has been granted the following responsibilities and powers:
- Prioritize depositor protection by ensuring payment of deposits.
- Recover loans and complete a Due Diligence Audit (DDA).
- Investigate financial irregularities and initiate necessary legal actions.
- Exercise the duties and rights of the board of directors and the institution's special general meeting.
Previous Corrective Actions:
Earlier, NRB had taken actions against the bank under the Regulation 3 of the Immediate Corrective Action Regulation, 2074, effective from Mangsir 11, 2081 (November 26, 2024). However, due to the bank's failure to achieve significant progress, stricter measures were deemed necessary.
This decisive step by NRB aims to protect public interests and ensure the security of depositors' funds.
