29, Nov 2011
The Due Diligence Audit (DDA) of troubled Nepal Share Market and Finance Limited (NSMFL) has revealed that the company’s non-performing loans (NPLs) account for almost half its total lending. According to DDA, the company’s NPLs stand at Rs 2 billion out of the total lending of Rs 4.5 billion. The Nepal Rastra Bank had directed the company to carry out an independent DDA following the revelation of large-scale fund misappropriation by its former Executive Chairman Yogendra Prasad Shrestha. Shrestha is currently in judicial custody.
A senior NRB official confirmed that the company’s NPLs account for 44.44 percent of its total lending and the biggest chunk of loans are to be recovered from Shrestha himself. A judicial process is underway after Shrestha’s arrest. He has been charged with misappropriation of public deposits worth Rs 2.65 billion. Currently, the company has liabilities worth Rs 2.86 billion, out of which Rs 2.18 billion is deposits put by individuals and institutions and Rs 680 million lent by other financial institutions. Although the NSMFL management has been recovering good loans, recovery of bad loans has so far been troublesome. This has created doubts among depositors and inter-bank lenders about whether they would get their money back.
With the central bank directing the company to return back individual depositors’ money first, the company has already cleared accounts of around 13,000 depositors. The company, however, has kept the minimum required balance in individual accounts so that it doesn’t lose its customer base. Around 2,000 big depositors are currently being paid back their deposits in installments, according to the company. With the central bank giving priority to depositors as per the Bank and Financial Institution Act (BAFIA), inter-bank lenders are worried about the recovery of their loans. “The central bank should give equal priority to inter-bank loans as the funds are also collected from depositors,” said a banker who had extended inter-bank loans worth millions of rupees to the company.
Last week, the Nepal Bankers’ Association dispatched a letter to NRB, asking it to treat inter-bank loans like other regular individual deposits. Bankers have demanded that the central bank allow them to purchase troubled BFIs’ good loans if they fail to recover. And as banks are required to provision non-performing inter-bank loans after the completion of the second quarter, they have also demanded deferral of loan loss provisioning until a concrete decision is taken regarding inter-bank loans. Some bankers are even considering suing NSMFL if NRB fails to address their problem at the earliest. Mega Bank CEO Anil shah said if they are to provision such huge amount, they will not remain silent and will seek court’s help. About a dozen of banks have lent to the company.
NRB Spokesperson Bhasker Mani Gnawali said the central bank is aware about the problems being faced by financial institutions whose money is stuck in NSMFL. He added that NRB will soon reveal a plan to address their problem.
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