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🇳🇵 Nepal /Economy & Trade

In Nepal, bankers are learning to fear the loan

From Kathmandu Post · () English

Summarized and contextualized by DistantNews.

At a glance

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  • Nepali police are intensifying investigations into loans issued by banks, leading to arrests and criminal cases against bankers.
  • The Central Investigation Bureau has filed cases against bank employees over loans secured by questionable collateral, while the central bank claims its own inspections find no irregularities.
  • This discrepancy raises questions about the central bank's supervisory role and the prosecution of officials responsible for overseeing financial institutions.

Bankers in Nepal are increasingly facing scrutiny and legal action as police investigate loans extended by financial institutions. The Central Investigation Bureau (CIB) of Nepal Police has arrested bank employees, including former CEOs, accusing them of extending loans secured by problematic collateral, such as riverbed land. In one case, a borrower was convicted, but bank employees were acquitted, with the case now before the Supreme Court.

Recent investigations have targeted former executives of Prabhu Bank and Nepal Investment Mega Bank. The CIB filed a banking offense case against former Prabhu Bank chair Devi Prakash Bhattchan and former CEO Ashok Sherchan over transactions with a remittance company. This followed a "special inspection" by Nepal Rastra Bank, the country's central bank, which had not identified any offenses. Similarly, a case has been filed regarding a loan extended by Nepal Investment Mega Bank to the now-defunct Smart Telecom, which defaulted after its license was revoked.

Former finance minister Yubaraj Khatiwada emphasized that Nepal Rastra Bank, as the financial sector regulator, should be the primary body to examine such lending practices. However, the central bank has remained largely silent on these police investigations, leading to questions about its oversight. While bankers face arrest and prosecution, there has been no similar scrutiny of the officials responsible for supervising these institutions. The Banks and Financial Institutions Act, 2017, mandates banks to recover principal and interest through asset sales, but the current situation highlights a growing tension between police enforcement and regulatory oversight in Nepal's banking sector.

Every regulator has its own role in overseeing lending. In the financial system, that responsibility lies with Nepal Rastra Bank.

— Yubaraj KhatiwadaFormer finance minister and former governor Yubaraj Khatiwada commented on the regulatory responsibilities in the context of the banking investigations.
DistantNews Editorial

Originally published by Kathmandu Post. Summarized and contextualized by our editorial team with added local perspective. Read our editorial standards.

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