CIBIFIN Expresses Grave Concern Over Legal Scrutiny in Nepal Investment Mega Bank's Collateral Auction

The Confederation of Banks and Financial Institutions Nepal (CIBIFIN) has voiced profound concern regarding the ongoing investigation and legal actions initiated against certain key individuals in connection with Nepal Investment Mega Bank's collateral auction process. This development has sparked a critical debate within the financial sector, raising fundamental questions about legal precedence, regulatory authority, and the operational environment for banks in Nepal.

CIBIFIN highlights a significant legal quandary: whether sectoral regulations issued subsequent to the creation of a bank's primary right over an asset, established under existing laws, can effectively nullify or undermine that initial right. This issue is paramount for the stability and predictability of the banking sector. Furthermore, the confederation seeks clarity on whether the revocation of a business license automatically transfers all associated assets to state ownership, or if a bank's legally established ownership and collateral security rights, predating such revocation, remain intact. The extent to which later-issued regulations can impact rights previously granted by primary legislation is a crucial point of contention that demands immediate resolution.

In its statement, CIBIFIN underscored the urgent need for clear legal provisions that delineate which laws and rights banks should rely upon when extending and recovering loans. This clarity is vital for fostering a stable lending environment and ensuring the efficient functioning of financial institutions. The confederation also emphasized that the primary authority for conducting technical and regulatory assessments of institutional decisions related to loan disbursement, collateral security, loan recovery, and auctions rests with Nepal Rastra Bank (NRB). CIBIFIN firmly believes that such technical and regulatory scrutiny by the NRB should precede any formal investigation or legal action, ensuring a comprehensive and informed approach.

While acknowledging the ongoing legal dispute is sub judice and expressing profound respect for the dignity, independence, impartiality, and judicial process of the courts, CIBIFIN remains confident that the matter will be resolved appropriately in accordance with the constitution, prevailing laws, established precedents, and judicial practices. The confederation stressed that any examination of collateral auctions and related institutional decisions must meticulously evaluate their technical, commercial, and regulatory dimensions, always prioritizing the bank's interests, the security of depositors' funds, and the imperative of loan recovery.

CIBIFIN issued a stern warning that proceeding with investigations and prosecutions without a clear distinction between legitimate professional banking decisions, potential regulatory errors, and genuine criminal acts could severely undermine the banking sector's decision-making capacity, erode corporate governance standards, dampen leadership morale, and ultimately diminish public trust. Such an environment of uncertainty could deter prudent risk-taking essential for economic growth. The confederation also stressed the critical importance of protecting the privacy and sensitivity of customer information, internal bank decisions, business details, and personal facts obtained during investigations, in strict adherence to legal provisions.

This incident has also brought to the forefront significant policy questions concerning the security and risk assessment of loans extended to national priority sectors, such as hydropower, telecommunications, and infrastructure, which often rely on government licenses. If recent decisions related to such licenses render previously established ownership or security rights uncertain, CIBIFIN questions how banks lending to these vital sectors are expected to accurately assess and manage risk. Furthermore, the confederation called for a clear policy framework to determine who bears the additional risks associated with loans prioritized or mandated by the state or regulatory bodies. Such legal and policy ambiguities, CIBIFIN cautioned, could have profound and long-lasting adverse effects on loan disbursement, the cost of credit, overall financial stability, and the broader economy, urging the Nepal government and relevant authorities to address these concerns proactively.

Finally, CIBIFIN advocated for discouraging the criminalization of civil and regulatory disputes concerning transactions, liabilities, and rights between banks, borrowers, and the government, particularly in the absence of objective evidence of clear criminal intent or culpable actions. While affirming that no entity is above the law and that proven illegal activities must be met with appropriate legal action, CIBIFIN reiterated its unwavering commitment to upholding the rule of law, fostering the sustainable development of the banking sector, and contributing to the creation of a robust economy through necessary coordination and cooperation with all relevant stakeholders.