Risk of Arrest for CEOs of Major Banks in Nepal Amid Efforts to Protect Depositors’ Funds
In Kartik 2063 BS (October-November 2006), a massive bank run occurred at the then NB Bank, considered the largest in Nepal’s history. The Nepal Police, through the Central Investigation Bureau (CIB), has been arresting chief executive officers of banks, raising concerns about long-term impacts on the banking sector. Jyotiprakash Pandey, CEO of Nepal Investment Mega Bank, was arrested on charges of auctioning collateral to recover loans but was later released on bail by the Supreme Court. (7 Jestha, Kathmandu)
Following media reports that promoters had transferred billions of rupees to their private companies and the bank was facing a crisis, a crowd of depositors gathered at the then NB Bank from late Kartik 2063 BS. People stood in lines 3–4 kilometers long outside the bank’s central office and branches to withdraw their money. This event is recognized as the biggest bank run in Nepal’s history. Due to the uncontrolled bank run, Nepal Rastra Bank had to intervene as the lender of last resort and take management control of the bank.
This incident is a significant example of how loss of public trust can cause financial institutions to collapse. Similar runs happened later at Vibor Development Bank, Peoples Finance, and others. Banks and financial institutions operate on the basis of public confidence, which sustains the financial system. Depositors’ trust enabled banks to hold deposits worth hundreds of billions. Should this trust falter, the entire economy is at risk. A Nepal Rastra Bank official stated, ‘If public trust in banks and financial institutions dissipates, the consequences could be even more severe.’
“When senior bank officials are arrested, it’s crucial to be very sensitive about whether they are truly guilty, but such sensitivity seems lacking in the CIB,” a senior banker remarked. Recently, Nepal Police’s Central Investigation Bureau has been treating banking activities, compliance with laws, and directives issued by the central bank as criminal offenses, arresting CEOs of major banks. Though no new bank runs have occurred so far, banking experts warn these actions may cause serious long-term repercussions in the sector.
Jyotiprakash Pandey, CEO of Nepal Investment Mega Bank (NIMB), was arrested by the CIB but released on government bail by the Supreme Court. “Illegal actions within banks must be identified, but when senior officials of major banks are arrested, it’s important to handle it sensitively to confirm actual guilt,” the banker said on condition of anonymity. Given that NIMB is a systemically important bank, any issues there could deal a severe blow to the economy. NIMB has a total capital of NPR 6.816 billion, public deposits of NPR 526 billion, and total assets worth NPR 616 billion.
They advise that action against large banks and their officials should proceed strictly as per legal procedures and evidence. “CEOs were arrested before but prosecutions stalled due to lack of evidence, which has undermined bank morale,” the banker added.
Prior to Pandey, the CIB had arrested former Prabhu Bank CEO Ashok Sherchan and other senior executives, but cases did not progress due to insufficient evidence. According to Section 57 of the Bank and Financial Institutions Act 2073, there is no prohibition on selling collateral by auction to recover loans. Nepal Investment Bank recovered a defaulted loan to Smart Telecom by auctioning the collateral following directives from Nepal Rastra Bank.
Smart Telecom’s license was canceled after failing to renew in Baisakh 2080 BS (April-May 2023), and the bank published auction notices in Ashwin 2082 BS (September-October 2025). After Ncell purchased some of Smart’s infrastructure and equipment for NPR 460 crore through auction, the bank’s loan was fully recovered. However, CEO Pandey was arrested on charges of selling government property, although under banking laws, such assets belong to the bank.
The auctioned collateral was duly registered in the bank’s name at the Land and Property Registration Office. The bureau justifies Pandey’s arrest based on management rules for defunct telecom companies’ assets, but lawyers argue these regulations conflict with established laws and dismiss the legal validity of these claims. Central bank officials have called CIB’s actions biased and unclear.
Nepal Investment Mega Bank is a major, systemically important institution overseen by Nepal Rastra Bank, which controls vulnerabilities. Officials said arresting executives over collateral auctions should not occur. The loan recovery followed central bank directives, fully complied with by the bank.
According to officials, the central bank has neither changed the CEO nor interfered with bank management based solely on the arrest. The central bank’s board has reviewed the CEO’s arrest. Bankers strongly oppose these detentions, fearing damage to the financial system.
A senior officer at Investment Mega Bank lamented, “It is painful that a bank CEO goes to jail while protecting depositors’ money. A 90-year-old mother shed tears over this, which was very distressing.” Another senior official said, “Bankers should be heard first before any action is taken.”
There are calls for the government to take seriously the development of the financial sector and promotion of economic activities.
Nepal Police’s CIB arrested Pandey on Baisakh 30 (April 13) and the Supreme Court granted bail on Jestha 1 (May 15). Pandey has since resumed his regular duties. A senior Nepal Rastra Bank official stated, “Banks invest depositors’ funds in loans and investments, and loan recovery is their primary function.”
Banks serve as custodians of savers’ funds and invest in safe sectors after conducting risk analysis. Since the central bank exposed loan misuse, banks have become more cautious in lending. This has caused visible slowdowns in private sector credit growth and size. Banks are working to manage this trend, but if private sector lending contracts further, it could have serious repercussions on the overall economy.
