Money
Cabinet paves way for Oriental Co-op takeover
The Cabinet has approved the Ministry of Cooperatives and Poverty Alleviation’s proposal to set up a committee to take over the troubled Oriental Cooperative and compensate its depositors.The Cabinet has approved the Ministry of Cooperatives and Poverty Alleviation’s proposal to set up a committee to take over the troubled Oriental Cooperative and compensate its depositors.
The ministry had forwarded the terms of reference (ToR) for formation of the Problematic Institutions Management Committee to the Council of Ministers a few days ago. It was approved by a Cabinet meeting held on Friday, Cooperatives Secretary Gopi Nath Mainali said.
This has paved the way for the ministry to initiate the process of setting up the office of the committee and hiring staff required for the body. The committee will comprise seven members and will be led by an incumbent or former judge.
The decision to set up the panel has raised hopes among hundreds of depositors
for recovery of billions of rupees that had perished following the meltdown of the unit in 2013.
It has been more than two months since the ministry formally declared Oriental Cooperative “problematic” and decided to form a committee to take over the institution; evaluate the entity’s assets; address problems of victims who lost money; and settle other liabilities. The committee will also look into the health of around 130 cooperatives that have been categorised as troubled.
“Initially, the committee’s focus will be on settlement of liabilities of Oriental Cooperative, so that its depositors could be compensated,” said Mainali.
Oriental Cooperative went bankrupt in 2013 after it disbursed loans haphazardly and allowed its key promoter, Sudhir Basnet, to illegally invest depositors’ funds in the real-estate market, which later crashed. These unsound practices and financial irregularities inflicted losses of around Rs5.2 billion, including Rs3.9 billion in principal, on depositors.
At that time when the cooperative went bust, it was also selling apartments and housing units via Oriental Builders and Developers, which was involved in development of over half a dozen housing and apartment projects in the Kathmandu Valley, including Oriental Colony, Chakrapath Heights at Basundhara, Dhumbarahi Apartments Phase 2, Bagmati Apartment at Sankhamul, Eastern Apartment at Kausaltar, Vegas City at Balkumari, Imperial Apartment at Naxal and Sanepa Height Apartment, among others.
Many people who had bought apartments from Oriental Builders and Developers and companies affiliated to it had complained that the firm had collected advance payment from them but failed to deliver the assets.
Around the time Oriental Cooperatives went bankrupt, at least 155 other financial cooperatives had also gone bust largely because of unsound lending practices, exposure to the real-estate market and involvement of promoters in embezzlement. These malpractices had wiped off over Rs3 billion parked in depositors’ accounts.
One of the major reasons for failure of so many institutions at that time was lack of proper regulatory oversight.
For instance, Oriental Cooperative had opened nine branch offices in the Kathmandu Valley, Pokhara, Biratnagar, Itahari, Syangja and Parsa, although legal provisions barred it from doing so. Also, promoter of one cooperative was found operating a slew of other such entities, which was illegal. Most of these cooperatives later faced problems and failed to settle liabilities of depositors.
“The committee will look into cases of these troubled cooperatives as well and compensate their depositors,” said Mainali.