Karnali Development Bank declared as troubled institution, NRB takes over

KATHMANDU: Nepal Rastra Bank (NRB) has declared Karnali Development Bank as a troubled institution.

In a meeting held on Wednesday, the central bank’s board of directors decided to place the bank, headquartered in Nepalgunj, Banke, under its control.

According to an official press release issued by NRB, the decision was made under Section 86(b) of the Nepal Rastra Bank Act, 2058.

Following the declaration, NRB has assumed full management responsibility for the bank.

Management Group Formed

To oversee the bank’s operations, NRB has formed a three-member management group led by Deputy Director Tikaram Khatri from the Bank and Financial Institution Regulation Department.

The group also includes Bishnu Kumar Bishwakarma, Deputy Director of the Financial Institution Supervision Department, and Jugal Kishore Kushwaha, Deputy Director of the Legal Division. The group will assume responsibilities effective from Dec 26.

The management group has been authorized to operate under the Nepal Rastra Bank Act, 2058, the Banking and Financial Institutions Act, 2073, and other relevant laws.

They will also have the power to function as the board of directors and conduct the institution’s special general meetings.

Prioritized Actions

The newly formed management group has been tasked with:

• Safeguarding public interests and ensuring the timely disbursement of depositors’ funds.
• Recovering loans and completing a due diligence audit.
• Investigating financial misconduct and initiating legal action as necessary.

Reasons Behind the Declaration

NRB cited several critical issues leading to the declaration:

• Failure to maintain the minimum capital adequacy ratio.
• Poor institutional governance.
• Suspicion of financial irregularities.
• Weak liquidity position, preventing the bank from meeting its deposit obligations.

The bank’s non-performing loan ratio had soared to 40.85%, signaling a deteriorating financial state.

A month earlier, on Nov 26, NRB had restricted the bank from collecting deposits and issuing loans.

Despite giving the institution six months to resolve its issues, the situation worsened, prompting the central bank to take control.

NRB emphasized that the move aims to protect depositors’ funds and maintain trust in the banking system, as allowing the bank to operate in its current state would jeopardize public savings and erode confidence in the financial sector.