Court nod to liquidate Nepal Dev bank

Patan Appellate Court has given its approval to Nepal Rastra Bank (NRB) to liquidate the long-troubled Nepal Development Bank (NDB). Issuing a verdict on the case lodged by the central bank, the court on Thursday endorsed NRB´s decision to liquidate the bank and instructed NRB to appoint a liquidator for steering the liquidation process ahead.

The court also named Chartered Accountant Narayan Bajaj as the liquidator, and instructed him to complete all tasks related to liquidation within three months. The decision of the court is contrary to what the Investigation Authority it appointed earlier recommended. T R Upadhyaya, the court-appointed investigator, had admitted that the bank was insolvent, as cited by the central bank, but he had also concluded that it could be revived.

NRB had lodged a petition at the Appellate Court following its June 2 board meeting decided to send NDB into liquidation, concluding that all its five-year long effort to revive the bank failed owing to incompetent and defiant management. Subsequently, the central bank had frozen all the transactions of the bank, including accounts maintained by the NDB at other financial institutions until the appointment of a liquidator.

The central bank had decided to liquidate NDB after it found the bank management of repeatedly defying its directives issued to reform its financial health. The troubled bank has cumulative loss amounting to Rs 690.2 million and non-performing loans at 55.09 percent of the loan portfolio. The bank also has negative capital adequacy of 48.31 percent as against 11 percent provisioned by NRB. The bank had deposits of more than Rs 720 million.

Going by the court´s decision, Bajaj would now assess the assets of the bank and identify how much he can recoup from their disposal. Based on the amount he recovers, Bajaj will then repay its debtors. "Bank and Financial Institutions Act and Insolvency Act both have laid down a clear cut payment order. Bajaj will make his decisions accordingly," said Prem Prasad Pandey, assistant director at Legal Division of NRB.

Going by the provisions of those Acts, the liquidator will first clear the outstanding administrative costs of the bank and also due liability of NDB employees. It will then repay depositors of the bank in the order of saving, fixed and current accounts one after another. "If the liquidator is still left with money, he will then proportionately distribute it among the shareholders," said he.

In case, the provisions of the two Acts contradicted or the liquidator faced any practical hassles, he will knock on the court´s door for receiving its instructions.
Source:Republica