KATHMANDU, Aug 27: Nepal Rastra Bank (NRB) is mulling over banning its board members from assuming any post in banks and financial institutions within a year of resigning from their posts.
The step comes after Shambhu Saran Kayastha, a former board member of the Rastra Bank, joined Nepal Bangladesh (NB) Bank as its chairman around a month after stepping down from the central bank´s board.[break]
Currently, Nepal Rastra Bank Act only bars governor and deputy governor from assuming posts in commercial banks and financial institutions within a year of resigning from their posts.
Since the law does not apply to board members, Kayastha seems to have taken advantage of the situation, a high-ranking Rastra Bank official told Republica on condition of anonymity.
“But we have acknowledged such actions may create conflict of interest as board members of a central bank - who join banks and financial institutions immediately after resigning from their posts - have lot of information on the direction of the regulator,” the official said. “This can even create damaging results.”
Kayastha´s appointment as chairman of NB Bank, although legal, has become a hot issue in the banking sector particularly because some of the promoters of the bank are embroiled in cases relating to embezzlement of over Rs 1 billion from the bank´s coffer.
“The amount was siphoned from the bank in forms of loans to companies whose interests were tied to some of the board members of the bank,” the Rastra Bank official said without giving names of people involved in the case.
The central bank is currently investigating the matter. But before it came out with a verdict, Pushpa Raj Rajkarnikar stepped down as chairman of the bank. Laxmi Bahadur Shrestha, another promoter, also resigned from the post of the board director at the bank.
In place of Rajkarnikar, who was representing public shareholders, the bank on Sunday appointed Mukunda Nath Dhungel, former general manager of Nepal Stock Exchange, as board director, while another post in board of directors, which was vacant for a long time, was filled with the appointment of Achyut Prasad Bajagain, former Rastra Bank official.
NB Bank, a category ´A´ financial institution, was on the verge of bankruptcy in 2006 due to accumulation of huge amount of bad debts, most of which were issued in the name of promoters of the bank. Following this, Nepal Rastra Bank had taken over the bank´s management, which was handed over to newly elected board of directors in January 2010.
Since then the portion of non-performing loans at the bank has fallen to less than five percent from over 20 percent.
Kayastha, who acknowledged assuming position of chairman at NB Bank three days ago, said: “I joined the bank to implement reform measures, which were long overdue.” He also pledged to give facelift to the bank´s image and financial position within next six months.
Related story
Revised interest rate corridor system introduced
