Grand Bank barred from opening new deposit accounts & providing loans by NRB

Nepal Rastra Bank (NRB) has taken prompt corrective action (PCA) against Grand Bank, barring it from opening additional deposit accounts and providing loans as its capital adequacy ratio (CAR) dropped to 4.07 percent due to massive losses, said officials.

NRB regulations require commercial banks to maintain their CAR at 10 percent and PCA is taken when it slips below that level.

Two senior NRB officials confirmed that the central bank had taken PCA on Grand Bank last week for failing to maintain its CAR after suffering a net loss of Rs 1.6 billion at the end of the last fiscal year.

 With the bank requiring to make provisioning of Rs 1.93 billion for defaulted loans, the bank incurred a huge loss that hit its capital.

According to central bank officials, the Grand Bank went into the red after massive loans issued to the real estate sector when Sudhir Khatry was the chief executive turned bad. NRB has taken third category PCA against Grand Bank as is the practice when CAR drops to 4-6 percent.

Under the provision, Grand Bank has also been barred from purchasing or leasing fixed assets besides forbidding it from collecting deposits and making further lending.

Moreover, it cannot distribute incentives, pay management fees and raise the retirement and other benefits. The bank has also been

told to obtain the central bank’s approval before introducing any new business activities related to deposits and credit.

Similarly, the central bank has imposed a ban on distributing cash dividends and bonus shares and opening new branches besides demanding the bank’s recapitalization plan from its management.

An NRB official said that Grand Bank had been hiding is real financial status by ever greening its real estate loans. “As the borrowers didn’t repay the loans, the bank has been found to have created extra loans to enable borrowers to pay interest from those new loans,” said the central bank official.

“With the new management making public the actual status, the bank has been found to be running huge losses,” said the official.

Former Grand CEO Khatry had left the bank after intense pressure from the central bank to resign as bank was not operating well under him. According to central bank officials, it is tough to recover the loans that were issued against inadequate collateral and the majority of the loans have gone to the real estate sector.

However, Grand CEO Parshuram Kunwar Chhetri claimed almost all the loans have adequate collateral and they could be recovered.

“As the real estate market has improved lately, we are hopeful the loans can be recovered. It would have been very difficult two years ago,” he said.

Source: The Kathmandu Post