Bhagirath Yogi/Prakash Adhakari

A week after the Nepal Bank Limited (NBL)—the oldest bank in the country—wrote a strong-worded letter to Kathmandu-based embassies urging them not to issue travel visas to what it said ‘economic renegades involving in commercial terrorism,’ top business houses in the country continue to feel the tremors.

In its letter dated Dec. 14, 2004, chief executive officer of the NBL, J Craig Mcallister, wrote to Kathmandu-based missions: “You will in no doubt be aware of HMG/Nepal’s programme to rescind passports of willful loan defaulters who are in effect economic renegades engaging in commercial terrorism to the detriment of Nepali nation. In support of this programme, we would urge you to refrain from granting travel visas to willful loan defaulters.”

The Bank also attached a list of defaulters prepared by the Credit Information Bureau in terms of the Nepal Rastra Bank regulations.

So, what may have prompted the Bank to take this — what angry businessmen call — an ‘extreme step’?

“We have been fighting against the willful bank defaulters at every forum including in the court. It is an additional effort to make them devoid of their privileges, which they are enjoying now,” said Ajay Nepal, public relations officer of the NBL.

Bank sources said they had decided to knock the doors of diplomatic missions based in Kathmandu after witnessing “lack of support from the country’s judicial system.” “What could we do when these businessmen visit Bangkok to undergo massage but refuse to pay their dues to the banks?” asked a senior official of the NBL.

Early this month, the NBL requested the central bank to urge the government to seize the passports of the ‘willful bank defaulters’ as per section 4 of the Passport Act, which says: HMG/Nepal may impound or cancel the passport, that has already been issued, by showing or without showing any reason. The Bank has also urged the Finance Ministry to request the royal palace for its support by removing blacklisted willful defaulters from the list of attendees at palace functions.

A study conducted by Nepal Rastra Bank—the central bank– three years ago showed that the cumulative loss of the NBL had reeached Rs 7.67 billion and the primary capital of the Bank (worth Rs 4.74 billion) had turned negative.

Seeing the critical situation of the NBL, the central bank took the management of the Bank in its hands and later transferred the Bank’s management to Bank of Scotland, ICC(ICCMT) in  July 2002.

The government owns nearly 41 percent of the Bank’s equity while general public and others own over 54 percent of the equity. Nepal Credit and Commerce Bank Ltd. Owns the rest (4.92 percent)

Under the financial sector reform programme supported by the World Bank, the government transferred management of the two loss-making banks, NBL and Rastriya Banijya Bank (RBB), to foreign management groups. RBB is also said to have non-performing assets (NPAs, also known as `bad loan’)  worth over Rs 14 billion.

As of July 2004, the NBL’s NPA has reached around Rs  9.58 billion (over 34 percent of the total loans disbursed by the Bank.). Of this, the bank has identified loans worth Rs 3.5 billion as non-collectible (such as loans disbursed by corrupt bank officials against the guaranty of riverine land, among others.)

According to the NBL, the new management has been able to recover NPA worth Rs 4.20 billion over the last two years. “This can be considered satisfactory given the present situation in the country,” said Nepal of the NBL.

Senior NBL sources said that business organisations like Golchha and Jyoti were cooperating with the Bank in its effort to recover its loan. The NBL has rescheduled the loan of Eastern Sugar Mills owned by the Golchha Organisation and the banking system received a good money, Bank officials said.

But the Bank is still to recover a huge amount from business houses whom it considers ‘willful bank defaulters.’ For example, Piyush B. Amatya of the Amatya Enterprises, owner of deluxe Fulbari resort in Pokhara, and Mt. Everest Brewery Pvt. Ltd., owes  Rs  2.18 billion to the NBL..

Similarly, Basuling Sugar Mills owes over Rs 440 million to the Bank, Laxmi P. Acharya group  owes  Rs 330 million, Mohan Sahany owes Rs 283.7 million, Bijay Lohani/Mahendra Gartaula owe Rs 213 million, NK Sarraf and his partners owe Rs 185.4 million and Pawan K Khanal owes Rs 105 million.

Arun Chand, son of former Prime Minister Lokendra Bahadur Chand, is one of the promoters of the Basuling Sugar Factory.

According to a list of defaulters – obtained by the Nepalnews, the NBL has blacklisted over three dozen big business houses that owe the bank more than Rs 20 million.

Nepali business community—that enjoys strong political support–  has already started lobbying against the NBL’s move. In an interaction organissed in the capital on Sunday, FNCCI office bearers alleged that the NBL’s move had crossed the national norms and rules and was sure to bring negative impact upon the economy.

Talking to Nepalnews Tuesday, first vice president of the FNCCI, Chandi Raj Dhakal, said the NBL move was against the concept of the rule of law. “The Bank should adopt procedural methods instead of `blacklisting’ the businessmen and recommending such harsh measures,” said Dhakal. He further insisted that those who were not able to pay their loans were not the people with ill intentions. “Why is nobody talking about billions of rupees that is being leaked in the course of revenue collections?” he asked.

All don’t agree. A  former member of the NBL board of directors and a leading industrialist,  Rajendra Khetan, insists that at a time when the country’s revenue collection was going up and there had been increase in exports and imports, there could not be any excuse not to pay the bank loan. “People here are buying new houses, vehicles and property but are not willing to pay back loan to the Bank—which, in fact, is the public money,’ said Khetan.

Khetan also demanded that the willful bank defaulters  be investigated by the Commission for Investigation of Abuse of Authority (CIAA) and criminal cases filed against them. “The government should, however, introduce a rescue package to those entrepreneurs who are facing genuine problems,” he added.

Officials say they are worried about the negative impact on economy due to the huge portfolio of bad loans in the public sector banks. “If the problem couldn’t be addressed in time, it could create a situation something like that of Asian Financial Crisis,” Dr. Shanker Sharma, vice chairman of the National Planning Commission, told Nepalnews.

“The government’s policy is to bring these banks into a state of positive net worth and later privatise them,” said Sharma. He also said that a number of institutional and other  reform activities were being carried out in the NBL and RBB under the new management. “Though a lot needs still to be done, there has been improvement in the performance of these banks  under the foreign management,” he added.

According to reports, the high-level mission of the International Monetary Fund (IMF)—that met the top Nepali officials last week—also raised its concern about the government’s failure in taking effective action against the willful bank defaulters, among others.

Officials at some of the leading Kathmandu-based embassies refused to comment on the issue. Meanwhile, analysts said banking was an important sector in the country’s economy, but that it would not be a good idea to bring in third party from a foreign country on controversies related to commercial transaction between the two parties.

“Tomorrow, carpet, garment, hotels or even media sector would want to drag foreign missions (in cases related to their transactions), which will s et a bad precedent,” said an industry watcher.

It is still early to predict if the NBL’s move will bring intended results. It can. however, be said that it has already ruffled a lot of feathers in the business community—  that remained outside the purview of public scrutiny so far.