Though late, the central bank has decided to take over the
management of Gurkha Development Bank to save the ailing class `B' financial
institution from liquidation. "Nepal Rastra Bank (NRB) will send a three-member
team with a mandate of six months to handle the management of the development
bank as a last resort to save it," a highly placed source at the NRB said,
adding that the board meeting late last evening decided to send a team to take
over Gurkha Development Bank.
"The central bank team will take over the development bank
within this week," he said. "It will try to find a strategic partner by issuing
`Terms of Reference'." However, NRB is yet to decide the members of the team
that will replace the current shareholders that ran the bank into the current
The national level development bank ran into trouble after the
misappropriation of funds by its directors and executives ¿ an example of bad
corporate governance. Large scale insider lending coupled with dispute among
the directors led the development bank to be declared crisis-ridden by the
central bank in March, 2011.
Three key promoters ¿ D B Bamjam, Nirmal Gurung and Rakesh
Adukiya ¿ are blamed for the mess in the bank that was running well. Bamjam ¿
who is serving a jail term for banking fraud ¿ was the chairman when he was
found to be involved in fake lending.
The central bank designated team will work in finding
strategic partners, who will buy shares of the promoters involved in the
misappropriation of the bank's fund. But the current and earlier management
team of the bank had also tried to bring in a strategic partner but had failed.
"Merger with other financial institutions is also possible,"
the source added. Since March 2011, various attempts to revive its financial
health were aborted midway, either due to a dispute between the directors or
due to regulatory norms. Two months back, the central bank had sought Gurkha
Development Bank's clarification on its inability to improve its financial
health. But neither did it satisfy the central bank nor improve its financial
The central bank is empowered to take over the management of
any financial institution under NRB Act 2063 (Section 54), if it is
dissatisfied with the explanation provided. If the takeover of the management
also does not work then the development bank will be liquidated.
The development bank still has a total of Rs 1.5 billion bad
loans and is not allowed to collect deposits. Earlier, in May 2009, the central
bank had taken over the management of Bank of Kathmandu following prolonged
dispute between the bank's directors and management. Likewise in 2006, it had
taken over the management of Nepal Bangladesh Bank due to its deteriorating
financial health. Both the banks are financially sound at present.