Kathmandu. The arrest of Jyoti Prakash Pandey, Chief Executive Officer (CEO) of Nepal Investment Mega Bank, has created a stir in the banking sector of Nepal. The Central Investigation Bureau (CIB) of Nepal Police arrested Pandey from Sindhuli on May 14.
Pandey has been accused of illegally auctioning the physical infrastructure and network system that has come under the control of the Nepal Telecommunication Authority (NTA) after the license of Smart Telecom has been revoked.
Smart Telecom’s license was revoked in April 2080 after it failed to pay around Rs 30 billion to the government. According to the bureau, Pandey, as the coordinator of the bank’s loan recovery committee, has committed ‘fraud and criminal breach of trust’ by selling the property transferred to Ncell Axiata.
Clause 57 of the Bank and Financial Institutions Act, 2073 BS has given clear powers to the banks to recover loans.
Provision relating to debt recovery (Section 57): If the borrower does not pay the principal and interest as per the agreement, the bank reserves the legal right to recover its amount by auctioning the movable or immovable property pledged.
Protection of Depositors’ Interest: Since the loans issued by the bank are from the deposits of the general public, it is both the main duty and right of the bank to secure the amount and to recover it on time.
The CIB argues that after the license is revoked under the Telecommunications Act, the infrastructure automatically belongs to the state. However, banking experts say that the bank should be able to auction the infrastructure as the mortgage is accepted and the rights of the collateral are safe with the bank.
This incident is expected to have a serious impact on the Nepali banking sector.
1. Depositor’s Risk: If the bank is unable to recover the loan from the collateral kept as per the law and the employee has to go to jail, then the bad loans may increase and eventually the deposits of the general public may be at risk.
2. Decline in the morale of bankers: Criminal prosecution despite working in good faith has spread panic among bankers, which can slow down the loan flow and recovery process.
3. Legal contradiction: On the one hand, the Act gives the right to auction the collateral, on the other hand, the Telecommunication Regulations say that the property belongs to the state. This legal ambiguity has made banks afraid to invest in large infrastructure in the future.
According to banking experts, if the state does not take responsibility for the assets and the debts associated with it, it can destabilize the entire financial system.
