In the past, the central bank´s first priority used to be to safeguard the health of institutions, and that would overshadow the issue of punishing promoters and officials flouting banking rules and engaging in financial irregularities.[break]
“We have decided to change the sequence of our action,” said Governor Dr Yuba Raj Khatiwada. “Now we will bring the axe down on people engaged in irregularities and financial crime, and take steps to correct the health of BFIs after handing over the wrongdoers to the police department concerned,” he added.
The central bank decided to change its approach mainly after it realized that its corrective actions alone were not contributing to rooting out wrongdoing by BFI directors and chief executives. It now argues: wrongdoing tendencies will not fade away unless the wrongdoers are punished.
“Another reason for attacking the wrongdoers first is they will abscond if they get even a small hint; institutions, on the other hand, remain put,” said Dr Khatiwada.
Going by the existing Banks and Financial Institutions Act (BAFIA), the central bank can at most fine and sack officials involved in financial crime. For more stringent punishment, as provisioned in the Banking Offense (Punishment) Act, NRB needs to hand over the case to Nepal Police for further action.
However, Dr Khatiwada said lack of proper and timely action against wrongdoers in the past has allowed financial criminals to walk free.
“If people against whom we sought action for bankrupting financial institutions or engaging in lending and deposit-related irregularities are still walking free, it´s because of our own wrong priorities,” said Dr Khatiwada.
NRB has so far sought legal action against the promoters and senior officials of Nepal Development Bank, Cottage and Small Industry Development Bank, Gorkha Development Bank and Nepal Share Market and Finance (NSMF).
In the case of the first three, the central bank had enforced corrective action and moved on to penalize the wrongdoers only later. In the case of NSMF a few weeks ago, it froze the bank accounts, assets and passports of the former executive chairman and members of his family, and handed the case over to police for further action.
“We will now move on to get a realistic picture of NSMF and take corrective action soon,” said Dr Khatiwada.
Despite the reorientation in its approach, Governor Khatiwada agreed that there was an urgent need to improve coordination between NRB, the Ministry of Finance, Ministry of Home and Nepal Police to get positive results.
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