The NRB will now ask the bank to submit written explanation on “why it should not be liquidated” within 15 days. [break]
NRB officials call this step only a formality, which has to be conducted before starting the liquidation process of any financial institution, as “in most of the cases the troubled institution cannot justify why the central bank should not terminate its operation permanently”.
“Once the bank´s application is rejected by the central bank, the case will move to the court, which will appoint a liquidator to shut down operation of the bank and settle all the accounts,” an official of the NRB said.
UDB -- a Bara-based district level development bank opened with a paid-up capital of Rs 85 million -- was declared a troubled institution last March after the NRB found its financial health had suffered heavily after its executive chairman, Rabindra Bahadur Singh, siphoned off Rs 65 million of the paid-up capital for personal use.
At that time NRB inspections had found that Singh had created fake loans in an attempt to hoodwink the regulator and make it believe the money he embezzled was borrowed by customers.
NRB had also found him issuing credit to promoters by flouting central bank rules, and had later written off these loans without making any effort to recover them.
Because of these anomalies, the development bank had accumulated a negative net worth of Rs 120 million at the time the NRB inspected it.
Following this, the central bank immediately asked the UDB management to recoup money embezzled by promoters and inject additional capital to improve its financial health within six months.
But the bank failed to comply with these instructions, which compelled the NRB to initiate the liquidation process.
Once liquidated, UDB will be the third financial institution in the country to meet such a fate after Nepal Development Bank and Samjhana Finance.
The UDB currently has total deposits of Rs 81.5 million, including Rs 5.6 million accumulated from the general public, Rs 70 million collected from the Nepal Army Welfare Fund and Rs 5.9 million mobilized from other local institutional depositors.
“The liquidation decision will not inflict any loss to 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,” an NRB source said.
The source refused to elaborate whether the Nepal Army and other institutional depositors will be able to get their money back.
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