Gurkha told to slash face value of its shares

- PRITHVI MAN SHRESTHA, Kathmandu

Aug 31, 2014-

Nepal Rastra Bank (NRB) has told the crisis-ridden Gurkha Development Bank Limited to reduce the face value of its shares based on its losses. Gurkha, which is currently under the central bank’s management, has incurred an accumulated loss of Rs 1.5 billion as of 2013-14. Its capital adequacy ratio is negative by 30.58 percent, but it earned a net profit of Rs 180 million. Its paid-up capital is Rs 660 million.

However, the exact status of the financial institution will be determined by the ongoing due diligence audit (DDA), which is supposed to be completed soon.

Usually, the base price of a share of banks and financial institutions (BFIs) is Rs 100, but the central bank asked Gurkha to reduce the price to pave the way for a possible merger, or other measure to revive the bank.

 “We have told the Gurkha management to adjust the share price as per its financial status. It will be helpful in the event of a merger,” said an NRB official.

NRB has also asked the Gurkha to complete the DDA and make necessary recommendations on its future before Dashain. “Once we receive the DDA report, we will recommend Gurkha’s share value to NRB value,” said Mukti Sapkota, a member of the Gurkha management team.

Besides lowering the share value, the central bank has also directed the Gurkha management, headed by NRB Deputy Director Bisrut Thapa, to consider other options such as merger.

And, if the bank’s revival is impossible, the management has been told to recommend for sending the bank to liquidation. It has been one and half years since the central bank took over Gurkha management. The central bank had declared Gurkha crisis-ridden in March 2011 after the institution plunged into crisis due to insider lending and defaults.

Although the development bank was able to substantially reduce Gurkha’s liabilities to individual depositors, the bank still has huge liabilities to institutional depositors, including the central bank itself, Rastriya Beema Sansthan, and Citizen Investment Trust.

According to Sapkota, the bank currently has a cash reserve of Rs 300 million, while its liabilities to individual depositors stand at Rs 100 million and those to institutional depositors at Rs 1.6 billion. The central bank alone has deposits worth Rs 510 million, while RBS has Rs 260 million and CIT Rs 170 million.

According to the Gurkha management, it has been failing to recover loans that went to the promoters. Gurkha officials say it has to recover around Rs 630 million from the promoters, but after most of the promoters were released from jail as per the court’s order, the recovery has been difficult.

“We have also failed to sell collaterals put by third-party guarantors as district courts have barred us from doing so as per the demand of the guarantors,” a Gurkha official said. “The third-party guarantors have claimed they didn’t receive loans from Gurkha, which in fact had gone to the promoters.”

Seven branches to be closed

Gurkha Development Bank is closing down seven of its branches, including four in the Kathmandu. Among the branches to be closed are those based at New Baneshwor, Balaju, Bauddha and Bhaktapur in the Valley, and Kohalpur, Damak and Dharan from outside the valley. Kathmandu-based branches will be merged with Gurkha’s central office, while the Kohalpur branch will be merged with Narayangadh branch, Damak and Dharan branches will be merged with the Itahari branch. After the closure of the branches, the bank will have a central office and five branches. (PR)

Published: 01-09-2014 09:46

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