Tuesday, June 23, 2009

Another NRB rap on NDB's knuckles

Nepal Rastra Bank (NRB) has asked the troubled Nepal Development Bank (NDB) to clarify its Board of Directors' stand on the clarification letter that it submitted to NRB on Thursday. The NDB submitted its explanation signed by its chairman Amar Gurung to NRB but NRB said it had sought clarification on why the ailing development bank should not be liquidated from its board, said a high ranking NRB official. The NRB letter has asked NDB's board to clarify its stand.

"If the clarification is from the board also, the minutes of the board meeting also have to be submitted along with the clarification," the official said adding that the minutes of the board meeting are a must if it is the board's decision. "It is unclear whether it is the NDB chairman's personal explanation or the reply of the board of directors."

"Yes, we have received a query letter," NDB acting chief executive officer Purna Prasad Sharma said adding that the board is meeting to draft a clarification to NRB after it received the letter. On June 18, NDB submitted a complete capital plan but also sought time till October 17 to improve its financial health. It claimed that given the opportunity, it could sell shares of various institutions and get back the deposit from National Cooperatives as instructed by NRB. However, it still needs an additional Rs 70 million capital injections even after it manages to get its money back. However, there isn't any guarantee that NDB will make amends as it has repeatedly been flouting the central bank's directives.

Individual depositors will get their money back since the financial institution has Rs 16.5 million in cash and Rs 160.3 million bank deposit. The NRB's findings show the Employee Provident Fund (Rs 331.4 million) and the Nepal Army (Rs 180 million) might not get their money back but small depositors need not worry. NDB has around 20,000 shareholders and 3,500 depositors.

If NRB finds the clarification unsatisfactory, it will file a case at Patan Appellate Court to press for NDB's liquidation. NRB has already seized all its assets and frozen the accounts in various financial institutions. NDB, the nation's first development bank started operations in 1998. Though it has a paid-up capital of Rs 320 million, it ran into huge losses, pegged at Rs 690.2 million till the end of mid-March. Its non-performing assets are at 55.09 per cent and capital adequacy ratio (CAR) stands at a whopping 48.31 per cent. As per rule, a bank must maintain its CAR at 11 per cent.
Source:THT

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