Nepal Rastra Bank (NRB) has declared Karnali Development Bank, a Class ‘B’ licensed financial institution, as a “troubled institution” and assumed its management. The decision was made during a board meeting on Wednesday, citing financial irregularities and governance issues.

As per Section 86(B) of the Nepal Rastra Bank Act 2002, NRB has formed a three-member management team led by Deputy Director Tikaram Khatri from the Bank and Financial Institution Regulation Department. Other members include Deputy Directors Bishnu Kumar Bishwakarma from the Financial Institution Supervision Department and Jugal Kishore Kushwaha from the Legal Department. The team will assume responsibility for the bank effective from December 26.

NRB spokesperson Ramu Paudel stated that the management team has been granted authority under prevailing laws to exercise the duties and rights of the bank’s board and special general assembly. The team’s mandate includes prioritising deposit repayments, recovering loans, assessing assets and liabilities, and investigating financial irregularities for legal action.

The central bank clarified that Karnali Development Bank failed to maintain the minimum capital adequacy ratio, exhibited weak institutional governance, and struggled to meet deposit repayment obligations due to liquidity issues. Additionally, with a non-performing loan ratio of 40.85 percent, the bank’s financial health has deteriorated significantly.

NRB has further highlighted that continuing the institution’s operations in its current state would jeopardise depositor interests and erode trust in the banking system. Consequently, the move to declare the institution troubled was necessary to safeguard public interests, the central bank has said.

The financial institution had already been subjected to Prompt Corrective Action (PCA) under NRB’s regulations effective November 26. This measure aimed to enforce reforms, but the bank’s worsening condition necessitated stronger intervention.

The management team’s immediate focus will be to protect depositor funds and ensure the institution’s obligations are met, alongside conducting a detailed due diligence audit. The central bank said it remains committed to taking legal action against those responsible for the financial misconduct uncovered during investigations.