Economy, Market Watch

Liquidation process of NDB kicks off

Published by Octron on January 19, 2010

The liquidation process of Nepal Development Bank (NDB) has begun formally with the liquidator Narayan Bajaj starting the auditing of its assets and liabilities. The Patan Appellate Court had appointed chartered accountant Bajaj as liquidator after deciding to put the development bank into liquidation.

“We have monitored the accounts of NDB and began recovering loans,” said Bajaj. “We have already recovered Rs. 200 million.” He had issued a notice on Monday asking depositors, employees, service providers and others to come forward to claim repayment from the bank with valid documents within 15 days of the publication of the notice.

As the bank’s financial status deteriorated severely with double cumulative loss against capital, the central bank had asked the court to liquidate it. NDB’s cumulative loss stands at around Rs. 690 million. Its non-performing loan stands at 55 percent and capital adequacy ratio is negative by 48 percent. The capital adequacy must be 10 percent positive as per the existing rules of the central bank.

As per the Insolvency Act, the liquidator will have to submit the report about the assets and liabilities of the bank to the court before reaching any conclusion on sharing of the money to stakeholders. Small depositors have Rs. 190 million held in the bank. A little money was distributed to depositors some months ago at the order of the court. Who will be the first recipient of the money is still confusing as various acts that deal with such issues contradict each other, according to Bajaj.

The Bank and Financial Institution Act has provisioned that individual depositors will be the first recipients of money after the expenses of the liquidator have been deducted. The bank is being liquidated as per the Insolvency Act. The act has listed expenses of the liquidator, employees and other liabilities in its priority gradually excluding the directors of the company.

Its provision 57 states that all the liabilities of the company should be treated on an equal footing. “If the liquidated company does not have money for clearing all the liabilities, it should be cleared on a proportional basis,” the provision states. On the other hand, the Employees Provident Fund (EPF) Act has provisioned that the EPF should be given first priority in such payments. The EPF also has deposits in the ill-fated NDB.

In this context, Bajaj said that the court would have to decide in this regard. The court had ordered Bajaj to submit the report about the status of the bank within three months after carrying out a study on it. “There is still a possibility of restructuring the bank,” Bajaj said. “But there is no environment of trust in restructuring.”

Earlier, a study team led by chartered accountant Tirtha Raj Upadhyay had submitted a study report about the bank suggesting to the court that there was a possibility of restructuring the bank although it turned insolvent. But the court decided to take the bank into liquidation as the claims of some groups turned unconvincing in the eyes of the court. This is the first time any financial institution has been put into liquidation.

Source: Kantipur

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