UDB was declared a troubled institution in the first week of March, 2011 after NRB traced a sharp deterioration in its financial health, mainly due to heavy embezzlement of capital by its promoters. [break]
Inspection by NRB had disclosed that UDB -- a district level development bank in Bara established with a paid up capital of Rs 85 million -- had a negative net worth of 120 million.
The central bank had then asked UDB management to recoup money that the promoters embezzled and instructed promoters to inject additional capital to improve its financial outlook within six months.
“But the bank failed to comply, and that has left us with no option but to liquidate it,” said a senior NRB official. He also disclosed that the central bank was taking a formal decision in this connection next week.
If the central bank decides to press ahead with the liquidation of UDB, it will be the third financial institution to meet such a fate in Nepal. Nepal Development Bank and Samjhana Finance are the other two financial institutions that have been liquidated so far.
NRB records show that UDB got into trouble mainly after its executive chairman, Rabindra Bahadur Singh, siphoned off Rs 65 million of the total paid up capital for personal use. NRB inspections later found that Singh had created fake loans in a bid to veil his wrongdoing and to show that the money he embezzled was lent out to various customers.
NRB had also found him issuing loans to the promoters, thus flouting central bank rules. As if that were not enough, he had written off the loans issued to promoters without making due effort to recover them.
On the basis of such findings, NRB had asked Nepal Police to take action against Singh and Radha Krishna Amatya, another director of the UDB board, under the Banking (Offenses) Act. Currently, Singh and Amatya are behind bars in Birgunj.
NRB records further show that UDB has total deposits of Rs 81.5 million, including Rs 5.6 million from the general public, Rs 70 million from the Nepal Army Welfare Fund and Rs 5.9 million from other local institutional depositors.
“The liquidation decision will not inflict any loss on public depositors as we have already frozen Rs 6 million worth of the bank´s cash. The liquidator can easily refund all the money to the general public,” said the source.
He refused to elaborate whether the Nepal Army and other institutional depositors will be able to get back their money, though he disclosed that the army has frozen the transactions of various collaterals owned by the bank in a bid to secure its deposits.
The bank is currently manned by just two staffers and two guards. It is not allowed to mobilize deposits and issue loans.
“The bank´s operations are small and the decision to liquidate will impact neither the general public nor the financial system,” said the source, defending the central bank´s initiative to liquidate UDB.
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