TROUBLED FINANCIAL INSTITUTIONS MULL WITHDRAWAL CEILING

TROUBLED FIs MULL RAISING DEPOSIT WITHDRAWAL CEILING

Kathmandu, 19 Sept : Depositors of banks and financial institutions (BFIs) facing liquidity squeeze may find some comfort this festive season as many of these companies are planning to raise the deposit withdrawal ceiling following the central bank´s instruction, Republica reports.

Four financial institutions -- Gurkha Development Bank, Nepal Share Markets and Finance, Capital Merchant Banking and Finance and People´s Finance -- are facing cash shortage lately, largely due to exposure to bad loans and bad governance.

Nepal Rastra Bank (NRB) -- the central monetary authority -- has instructed these companies to stop mobilizing new deposits and issuing new loans. At the same time, these institutions have also been told to return the money of depositors in installments so as to give them some relief.

As per the direction, depositors are now allowed to withdraw certain amount every week. But with the advent of Dashain -- Nepal´s biggest festival, some of these institutions are mulling over raising this ceiling.

Nepal Share Markets and Finance, which started bleeding following embezzlement of Rs 2 billion while issuing loans, for instance, is planning to allow people who have deposited up to Rs 20,000 to withdraw the entire amount.

¬¬¬¬¬¬¬¬¬¬¬“Individual depositors who have deposited more than this amount can withdraw Rs 1.2 million or up to 20 percent of the total amount,” Nandan Hari Sharma, CEO of Nepal Share Markets and Finance told Republica, clarifying that the central bank is yet to approve the proposal. “Even if the offer is approved, it will be valid only for the Dashain period,” he said.

Earlier, the finance company was allowing individual depositors, who still have deposits worth around Rs 800 million in the institution, to withdraw up to Rs 5,000 per week.

People´s Finance, another financial institution facing cash shortage following deposit outflow of Rs 70 million in one go, is also thinking of raising the deposit withdrawal ceiling. “But we have not been able to take a formal decision in this regard as we are still in the process of raising funds,” Kumar Prasad Basti, CEO of the finance company, told Republica.

The finance company, which owes Rs 700 million to its depositors, is selling three plots of land in Kathmandu to raise the money to pay to its depositors. “A deal might be struck as early as Monday, if not Wednesday,” he said.

Officials of other two financial institutions -- Capital Merchant Banking and Finance, and Gurkha Development Bank -- also say they are taking depositors´ concerns seriously especially at a time like Dashain when consumer spending goes up significantly.

Capital Merchant Banking and Finance, which is suffering from deteriorating asset quality due to exposure to real estate sector, told Republica that it is thinking of allowing depositors to withdraw more money than in other days.

“But we have not been able to take any decision in this regard, as we are still in the process of appointing a new managing director,” Hari Krishna Subedi, senior manager of the finance company, which is allowing withdrawals of Rs 10,000 per week to all its depositors, said. “Once the appointment is made, we will come up with a scheme.”

However, an official of Gurkha Development Bank, requesting anonymity, said the company could not raise the withdrawal ceiling even during Dashain as it is suffering from one way drain out of funds since it is neither allowed to collect new deposit nor disburse new loans.

The bank currently owes around Rs 3 billion to its depositors. It is currently allowing depositors to withdraw amounts ranging from Rs 5,000 to Rs 100,000 per week.

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