Belated realisation

The Nepal Rastra Bank (NRB) on Sunday assumed the management of the Nepal Bangladesh Bank Ltd (NB Bank), a couple of days after the drama of the Patan Appellate Court’s stay order in favour of the NB Bank’s board, who had filed a writ petition on leaked information of the impending action by the central bank, a run on the bank with thousands of depositors withdrawing about two billion rupees in just three days, and then the sudden request by the NB Bank board — which was panicked by the prospect of impending bankruptcy — to the central bank to do what it had planned to do, offering to reverse all its preventive action, including its writ petition. In the process, the judiciary has suffered yet another blow to its public image, not long after the Supreme Court’s controversial verdict on the bank loan default case of a sugar mill. The judge issuing the stay order has not remained entirely untouched by the fallout — Keshav Prasad Mainali has been shifted back to Bhairahawa.

The central bank has to put the NB Bank back on track. This apart, as some of the intervening events raise serious suspicion, a thorough investigation into this scandal is called for, coupled with the resolve to punish the guilty. NRB officials’ role cannot remain outside the purview of such an inquiry. The central bank’s present action appears too belated. It is hard to buy the argument that NRB had been taking internal action for the past four years and that it was compelled to take the current extreme step after the NB Bank’s board had ignored its directives and warnings. A four years’ grace period while the NB Bank management continued with its wrong ways gives rise to questions about the competence, and even the motives, of NRB officials responsible for the regulatory responsibility. There had been occasional reports of the flow of bad credit and irregularities concerning several of the private commercial banks during the past several years. But the lack of action brings to the fore the question whether NRB rose to the occasion.

If the regulatory agency had been effective, the problem could have been taken care of before it reached a crisis point. This applies even to NRB’s role vis-a-vis the two state-controlled banks — Nepal Bank Ltd and Rastriya Banijya Bank. Action against the NB Bank would not mean much for the banking sector if the managements of other banks in the

same league were allowed to go scot-free. While the performance of NRB itself has generated much debate, it is necessary for it to set an example of operating in an accountable and transparent manner.

NRB should also consider whether people involved in other kinds of business should be allowed to invest in a financial institution, as this is likely to involve a serious conflict of interest. Such investors have tended, as the case of the NB Bank testifies, to take loans from such a bank on the softest terms possible, that, too, often without sufficient collateral or guarantee, and most of the loans are diverted to other purposes. It becomes the duty of the regulatory bodies to ensure that it does not happen.