E-Kantipur

KATHMANDU, JUN 11 - The core capital of Madhyamanchal Grameen Bikas Bank (MGBB) was reduced to Rs. 60 million from Rs. 100 million after it was taken over by the Unity Life International (ULI) group.

MGBB’s management chief Revati Prasad Nepal, who was appointed by Nepal Rastra Bank after the previous ULI controlled board was suspended, said that an increase in unnecessary expenditure on the part of the management helped to wreck the rural bank.

After criminal charges of fraud were brought against the ULI team and as its management team in MGBB was also illegal, the central bank had suspended the previous board. The NRB management is now digging into MGBB’s financial transactions to find out the real problems.

Nepal said that the amount of unwanted expenditure almost doubled during the time of the ULI-led management. “The core capital was reduced by Rs. 40 million as expenditure made with the resources of the bank went for personal benefits,” Nepal said. Capital is the key of any banking institution to measure its financial health.

However, Nepal said that the bank’s financial health was still good with the capital being one-ninth of the total lending. A rural bank can issue loans amounting up to 12 times

its core capital. The bank’s lending stands at Rs. 560 million as of the second quarter of the current fiscal year. Its deposits amount to Rs. 150 million. It has outstanding loans of Rs. 800 million taken from various banks and financial institutions.

MGBB has not made the required provisioning of Rs. 100 million. In particular, provisioning for retirement benefits and leave has not been made, said Nepal. “The previous management of MGBB seems to have remained

aloof from making provisioning only to show more profits of the bank,” he added.

The NRB management at MGBB is yet to find out the real financial position of the bank as it is yet to recover details from the bank’s office at Unity Tower, Jawalakhel because it has been sealed off.

Nepal said that the new management was focusing on recovering loans and reducing expenditure. “We are yet to confirm if the loans that went to ULI members can be recovered,” he added.

NRB was in the dark about ULI’s involvement in MGBB as the central bank was not informed about the takeover process and even the annual general meeting held by the ULI-led management.

Posted on: 2010-06-11 09:37

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