Nepal Rastra Bank Intensifies Regulatory Scrutiny: Prabhu Bank's Former CEO Fined, State-Owned Banks Issued Warnings

Nepal Rastra Bank (NRB), the central bank of Nepal, has significantly escalated its regulatory oversight, taking decisive action against three 'A' class commercial banks for various breaches of banking regulations and directives. This move underscores NRB's unwavering commitment to fostering robust corporate governance and ensuring strict compliance within the nation's financial sector. The banks facing scrutiny include private sector giant Prabhu Bank, alongside the two prominent state-owned institutions, Rastriya Banijya Bank and Agricultural Development Bank. These actions stem from critical deficiencies identified during the central bank's latest monitoring efforts conducted by its vigilant Supervision Department.

The most stringent penalty was levied against Prabhu Bank, where a severe lack of corporate governance and repeated disregard for regulatory mandates were uncovered. Investigations revealed that Prabhu Bank exhibited extreme negligence in its loan classification processes, failed to maintain adequate loan loss provisions as required by prudential norms, and, critically, submitted inaccurate financial statements to the central bank. Such discrepancies, particularly the attempt to present differing data between the core banking system and official reports, indicate a deliberate effort to obscure the bank's true financial health.

As a direct consequence of these grave violations, Ashok Sherchan, the then Chief Executive Officer (CEO) of Prabhu Bank, has been personally fined NPR 500,000. This unprecedented individual penalty sends a clear message across the banking industry: top executives will be held accountable for lapses in governance and regulatory compliance under their watch. Furthermore, the central bank, observing a persistent lack of improvement despite repeated directives, compelled Prabhu Bank's Board of Directors to sign a formal commitment letter, obliging them to implement comprehensive corrective action plans to rectify the identified shortcomings. This measure highlights NRB's determination to enforce systemic changes and prevent future recurrences of such regulatory breaches.

In parallel, the two government-invested banks, Rastriya Banijya Bank and Agricultural Development Bank, received stern warnings for their non-compliance with regulations pertaining to account freezes. Rastriya Banijya Bank was specifically cautioned for violating the provisions of the Bank Account Freeze and Release Bylaws, 2081, by failing to freeze accounts in a timely manner when required. Similarly, Agricultural Development Bank was found to have delayed account freezes, disregarding legitimate requests from law enforcement agencies. The NRB has unequivocally instructed both state-owned banks to ensure strict adherence to procedural protocols and to prevent any recurrence of such operational oversights in the future.

These recent actions by Nepal Rastra Bank are part of a broader strategy to enhance the integrity and stability of the Nepali financial system. The central bank has been intensifying its scrutiny over the accuracy of financial statements submitted by banks and the overall quality of loan disbursements. The Prabhu Bank incident, in particular, serves as a potent reminder that high-ranking bank officials bear significant personal responsibility for the operational and ethical conduct of their institutions. Moreover, the warnings issued to Rastriya Banijya Bank and Agricultural Development Bank demonstrate that even state-owned entities are not exempt from rigorous regulatory oversight and are expected to operate within the strictest confines of the law.

Adding to the ongoing developments surrounding Prabhu Bank's governance issues, it has also been reported that Rashmi Pant, a former Chief Business Officer (CBO) of the bank, has been arrested. While the specific charges related to her arrest are yet to be fully detailed, this development further underscores the heightened scrutiny on the bank's past operations and the broader implications of its corporate governance challenges. The central bank's message is clear: non-compliance with established rules and regulations will inevitably lead to decisive and punitive action, reinforcing trust and transparency in Nepal's vital banking sector. This proactive stance is crucial for safeguarding depositor interests, maintaining market confidence, and ensuring the long-term health of the national economy.