Process to Distribute Shares to Depositors of Troubled Karnali Development Bank Initiated
Nepal Rastra Bank has initiated the process to convert depositors of the troubled Karnali Development Bank into shareholders. The bank’s liabilities exceed its assets by approximately 25 percent, making it impossible to return all deposited funds to the depositors. During the share conversion process, the price per share has been set at NPR 100, and if additional capital is insufficient, plans are underway to raise funds from domestic or foreign investors. Kathmandu, 18 Chaitra.
Nepal Rastra Bank is preparing to make the depositors of Karnali Development Bank shareholders as part of the effort to recapitalize and restart operations of the troubled institution. Since the bank’s liabilities exceed its assets by roughly 25 percent, the central bank has started this process to raise the necessary capital by converting depositors into equity holders. Redistribution of assets and liabilities by liquidation is unfeasible, prompting a plan to revive the bank.
To facilitate this, the governing board of Nepal Rastra Bank has decided to request the Securities Board of Nepal to assist with the process. Approval from the Securities Board is required to convert depositors into shareholders. Tika Ram Khatri, coordinator of the management committee appointed by the central bank, shared that discussions for necessary decisions on this matter have been underway. He explained, “There is a mismatch between the bank’s deposits and assets. Currently, deposits stand at NPR 430 crore, whereas assets total about NPR 365 crore.” According to him, even if all assets were realized, the depositors cannot be reimbursed in full.
Moreover, the quality of the bank’s loan portfolio is weak. Khatri added, “Considering the supervisory haircut as well, depositors cannot be repaid fully.” Therefore, to safeguard depositors, the institution must be restructured and resumed. Under current circumstances, depositors stand to lose around 25 percent of their deposits. To recover their funds through the revival of the bank, the depositors must convert their deposits into shares.
Two options are being explored to raise capital and issue shares in compliance with Nepal Rastra Bank’s directives. One such plan allows depositors to acquire shares equal to or less than their deposits, and initial surveys indicate depositors are amenable to this approach. The share price has been fixed at NPR 100 per share during conversion. If capital remains insufficient, funds will be sought from interested domestic or foreign investors.
Khatri noted, “We have reduced shares held by disorganized founders and common shareholders; the share value has fallen to NPR 1 per share, effectively converting 100 shares into 1. From the existing NPR 50 crore capital, NPR 23 crore has already been written down, leaving about NPR 27-28 crore in capital. To establish paid-up capital and manage liabilities for operational revival, over NPR 400 crore in capital is necessary.” Currently, the bank’s shareholding structure is 51 percent founders and 49 percent general public. After reopening, the shareholding pattern is planned to be adjusted to 60 percent founders and 40 percent public.
Under the Nepal Rastra Bank Act 2058, any share-related activities require approval from the Securities Board. Assistant spokesperson of the Securities Board Tolakant Nyaupane remarked, “The central bank is attempting actions it has not undertaken before, leading to the need for discussions between the Board and the Rastra Bank. Since the laws are unclear, amendments to the Securities Registration and Issuance Regulations and related directives are necessary.”
