Tuesday, May 19, 2009

Central bank takes over Bank of Kathmandu

Nepal Rastra Bank (NRB) has decided to take over -- albeit "for a brief period" -- the reins of the Bank of Kathmandu (BoK). However, the central bank has given options to BoK as well.
"If the bank can convince us that it will work together for its betterment, then we can rethink on the move after three months," a NRB board member said after the meeting.
The central bank took the decision in an emergency board meeting this evening after it received two separate letters of clarification from BoK on Sunday. The central bank sought the explanation following a dispute over the BoK board's move to call back its managing director Radhesh Pant from his post.
The central bank is set to take over the management as per NRB Act 2063 (Section 54) since it was dissatisfied with the explanation furnished by the bank. As per the rule, if NRB is not convinced with the explanation, then it is empowered to take over the bank's management.
The bank, in turn, argued that the decision to call back Pant from his post of managing director was "an internal matter and a normal process."
The crisis precipitated after the 313th board meeting of BoK on March 22, where it was decided to call back Pant from his post. Though the decision was taken by a majority of the board members, the disgruntled ones urged the central bank to intervene.
Four directors -- two each from promoters and public -- took the decision against Pant, while the remaining two -- Sitaram Thapaliya and Sudarshan Poudel -- were neutral.
Later, the disgruntled ones knocked on NRB's door. They submitted a separate letter of clarification on Sunday as well.
A majority of shares of BoK -- established on March 3, 1995 as the 10th commercial bank -- is with the public. The promoters are only 42 per cent stakeholders.
This is the second instance that the central bank is taking over a commercial bank. Earlier, Nepal Bangladesh Ltd came under NRB's control in November 2006 due to financial irregularities. But this time the reason is different.

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