The central bank had imposed prompt corrective action against the finance company in May, restricting it from collecting fresh deposits and issuing new loans, after investigations concluded its former chairman Yogendra Shrestha had embezzled depositors´ money and siphoned off capital by creating fake borrowers.[break]
Following this, the central bank issued numerous instructions to the finance company to improve its financial health. “The new directors and chief executive, who took over the management after the anomalies surfaced, also made numerous efforts to pull it from the brink of collapse. But all these efforts failed to improve its financial health and capital structure,” said a senior NRB source, justifying the recent NRB board meeting´s decision to tag the NSMF a troubled institution.
Although the NRB official did not elaborate further, investigations by the central bank showed Shrestha, who and his family own 40 percent stake in the NSMF, had misappropriated funds of well over Rs 2 billion from the company.
This included embezzlement of deposits worth Rs 165 million belonging to Citizens Investment Trust (CIT), and Rs 200 million belonging to state-owned insurer Rastriya Beema Samsthan, which Shrestha had used to purchase rights shares of NSMF.
Apart from that, the finance company, under direct order of Shrestha, had also issued credit of around Rs 1.60 billion in the name of fake borrowers.
Following exposure of the company´s poor corporate governance record, the central bank had frozen all assets belonging to Shrestha and his family members, and forwarded the cases to the police, seeking actions against them as per the Banking Offence Act.
Since then, Nepal Police has nabbed Shrestha and has started investigation against him. If proven guilty, he can face penalty and a jail term of as long as five years.
Embezzlement by Shrestha, meanwhile, has disabled the finance company from repaying money it owes to depositors. This has also obstructed the company from paying back inter-bank loans of around Rs 600 million obtained from various commercial banks, including Global, Janata, Mega, Prime, Century and Machapuchhree, to meet immediate financial obligations.
Despite this, the company claims it can resurrect by selling assets belonging to Shrestha and recouping much of the bad loans.
“We have already recovered Rs 1 billion so far, which includes around Rs 300 million of bad debt,” Nandan Hari Sharma, CEO of NSMF, told Republica. “We are also in a position to raise over Rs 1.5 billion immediately by selling assets belonging to Shrestha.”
Shrestha owns Star Mall, a commercial complex in Putalisadak, which, according to Sharma, is worth around Rs 1 billion.
However, NSMF is yet to find buyers.
“We are also selling Shrestha´s shares in Himal Hydropower worth around Rs 400 million, 1.5 ropanis of land in Kamaladi, estimated to yield around Rs 150 million, and around Rs 180 million worth of shares in Machapuchhre Bank,” Sharma said, claiming, “If we move ahead in this pace, we can lift the company from deathbed.”
The NSMF, which had already raised paid-up capital to Rs 2 billion to upgrade into a commercial bank, holds deposits worth approximately Rs 1.82 billion, while its loans and advances portfolio stands at around Rs 4.32 billion.
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