Karnali Development Bank declared problematic institution

KATHMANDU: Karnali Development Bank, Nepalgunj, a financial institution licensed under the ‘B’ class by Nepal Rastra Bank (NRB), has been declared a problematic institution.

At a meeting held on December 25, the NRB Board of Directors decided to declare the institution problematic as per Section 86B of the Nepal Rastra Bank Act, 2058 (2002). Consequently, the management of Karnali Development Bank has been taken under the control of NRB until further notice, as per Section 86C of the Act.

A three-member management group has been formed under the coordination of Tikaram Khatiwada, Deputy Director of NRB’s Banks and Financial Institutions Regulation Department, to run the institution. Bishnu Kumar Bishwakarma, Deputy Director of the Banks and Financial Institutions Regulation Department, and Jugal Kishor Kushwaha, Deputy Director of the Legal Division, have been appointed as members of the group. The group has assumed the responsibilities of the institution today.

The management group from the central bank has been authorised to exercise the functions, duties, and powers of the board of directors and the special annual general meeting of the institution, subject to the prescribed mandate and prevailing laws, including the Nepal Rastra Bank Act, 2058, and the Bank and Financial Institution Act, 2073 (2017). The group has been authorised to prioritise the payment of savings, recover loans, protect the interests of the general public, complete the Due Diligence Audit of the institution, investigate financial irregularities, and take legal action.

Karnali Development Bank has been placed under the control of NRB due to its failure to maintain the minimum capital ratio prescribed by NRB, weak institutional governance, suspicion of financial embezzlement, inability to fulfil deposit obligations due to weak liquidity, and financial mismanagement.

Due to the development bank's failure to maintain the minimum capital ratio prescribed by the central bank and a non-performing loan ratio of 40.85%, among other issues, the institution was taken under the control of NRB as per Regulation 3 of the ‘Nepal Rastra Bank, Regulations on Prompt Corrective Action of Banks and Financial Institutions, 2074’, effective from November 26, 2024.