Karnali Development Bank (KDB), which Nepal Rastra Bank (NRB) declared problematic and subsequently took over, has been found to have fabricated deposits and loans to mislead the regulatory body. NRB has filed a complaint with the Central Investigation Bureau (CIB) of Nepal Police, requesting an investigation into fraudulent activities allegedly involving the bank’s directors and senior employees.

CIB spokesperson Superintendent of Police Hobindra Bogati confirmed that the investigation is underway following NRB’s complaint. "NRB has alleged embezzlement of deposits and misuse of loans, and we have begun our inquiry," he stated.

The bank reportedly falsified deposits to create an illusion of strong liquidity and a low ratio of bad loans. It also prepared fake loan files. "We found that even the certificate claiming a fixed deposit in a commercial bank was forged," said an NRB source, adding, "This fraud appears to have been committed to manipulate financial indicators."

In its financial statements for the first quarter of the current fiscal year (FY) 2024/25, KDB reported a capital adequacy ratio of 10.05 percent and non-performing loans (NPLs) of 7.24 percent. However, NRB’s monitoring revealed a far worse reality, with bad loans at 40.85 percent and the capital adequacy ratio falling below 4 percent.

Investigators found that Rs 1.33 billion of the bank's total deposits had been embezzled. Additionally, half of its total loans were misused, with directors allegedly diverting funds to their own companies or relatives.

Currently, a three-member management committee, led by NRB Deputy Director Tikaram Khatiwada and including Deputy Directors Bishnu Kumar Bishwakarma and Jugal Kishore Kushwaha, is overseeing the bank’s operations. According to an NRB source, Rs 200 million in public deposits has already been refunded within one month of the central bank’s takeover.

NRB had been monitoring KDB for a year and had previously fined former Chairman Rajendra Bir Rai and Chief Executive Officer Dinesh Kumar Rawat Rs 500,000 each in the first quarter of FY 2023/24. The fine was imposed for failing to address deficiencies found during a special on-site inspection, violating NRB’s directives, and misusing loans. Despite repeated warnings, KDB continued publishing misleading financial reports instead of correcting its practices, ultimately leading to NRB’s intervention and management takeover.