Officers from the Metropolitan Police Crime Investigation Division, Hanuman Dhoka took Sainju and Dhungana into custody based on a complaint filed by a depositor Prasant Agrawal.

Agrawal is the proprietor of New Asia Pacific Traders. His complaint stated that he had deposited Rs 47.8 million at the bank’s Kuleshwor branch which was stolen.

The former branch chief Niraj Nepal and a few traders have been accused of embezzlement, and the complaint registered with the police has also blamed the bank’s board members, the police said.

Meanwhile, the bank’s management assigned by Nepal Rastra Bank has removed Sainju from her post. Earlier, she had been suspended when the central bank took over the development bank’s management.

Likewise, the central bank scrapped the suspended board of directors just before Dashain. A recent probe carried out by the bank management through a team of experts has pointed to possible involvement of suspended staff members.

H&B has been under financial stress for the past two years since good-for-payment cheques worth more than Rs 800 million were issued illegally by bank staff working in collusion with two traders.

Following the scandal, the bank suspended eight employees, including the main accused Niraj Nepal, the then chief of the Kuleshwor branch, and chief operating officer Mahesh Bhusal. The cheques were issued from the Kuleshwor branch.

A probe team headed by former chief judge of the Appellate Court Keshav Prasad Mainali, which launched the investigation two months ago, submitted its report to the bank recently.

The report has not directly implicated bank staff, but it suggests that they were involved. It has not shown any involvement of the chief executive and the board members, but has blamed the top management for its poor internal control system.

The report also pointed out that lack of system (software) integration after the merger in 2011 of Himchuli Development Bank and Birgunj Finance resulting in the formation of H&B Development Bank as another weakness of the management. Due to the different systems in use at the headquarters and the Kuleshwor branch, the top management failed to detect fraudulent activities there, said the report.

The report has also hinted at the need for payment to the holders of the good-for-payment cheques, with the bank’s annual general meeting (AGM) approving payment of 60 percent of the claims. The claims under such cheques amount to Rs 810 million, said the bank.

An H&B source said that following the AGM’s decision, the bank’s external auditor has advised putting Rs 390 million in provisioning, citing a possible need to make payment.