Nepal Rastra Bank has taken action against five microfinance financial institutions that failed to comply with regulatory standards and maintain financial discipline. The microfinance supervision department of the central bank initiated prompt corrective action against these five companies during its supervision and inspection in the third quarter of the current fiscal year. The central bank also cautioned the board of directors of two microfinance companies and the chief executive officer of another institution for serious regulatory lapses.
According to the central bank, the prompt corrective action was taken because these institutions failed to maintain the minimum capital adequacy ratio required by the regulator. The penalized institutions include Aarambha Chautari Laghubitta Bittiya Sanstha Limited, Ganapati Laghubitta Bittiya Sanstha Limited, Samudayik Laghubitta Bittiya Sanstha Limited, Nerude Mirmire Laghubitta Bittiya Sanstha Limited, and CYC Nepal Laghubitta Bittiya Sanstha Limited.
The financial reports of these institutions showed that Aarambha Chautari had a capital adequacy ratio of 7.77 percent, Ganapati Laghubitta had 6.06 percent, Samudayik Laghubitta had 6.12 percent, Nerude Mirmire had 6.01 percent, and CYC Nepal had 6.20 percent. These figures fell short of the regulatory limits set by the central bank to ensure financial stability.
Corporate Governance Failures and Action Against Board Members
In addition to capital adequacy issues, Nepal Rastra Bank took action against the board of directors of two microfinance companies for weak corporate governance and violation of operational regulations.
Dhaulagiri Laghubitta Bittiya Sanstha Limited faced action after its board of directors reinstated a Deputy Chief Executive Officer in direct violation of the employee service regulations. The board also paid the officer salary and benefits for the period they were not in active service. The central bank has issued a warning to Chairperson Srijana Thapa and all board directors, directing them not to repeat such unauthorized administrative decisions in the future.
Similarly, the board of directors of CYC Nepal Laghubitta Bittiya Sanstha Limited was penalized for purchasing vehicles by violating the rules of financial administration and exceeding the set budget limits. Nepal Rastra Bank has cautioned Chairperson Padam Nath Sharma and the board of directors to adhere strictly to the rules of financial spending and governance.
Central Bank Warnings to CEO of Nerude Mirmire
The central bank also issued a direct warning to Bhoj Raj Basyal, the Chief Executive Officer of Nerude Mirmire Laghubitta Bittiya Sanstha Limited, for accounting irregularities.
According to Nepal Rastra Bank, the microfinance company had written back 81 crore 55 lakh rupees from its loan loss provision and booked it as income. However, the institution failed to provide clear details of the borrowers whose provisions were being written back. The central bank noted that this accounting practice violated its direct guidelines and cautioned CEO Basyal to avoid such non-compliant accounting activities in the future.