The bad loans of Karnali Development Bank, which Nepal Rastra Bank has classified as problematic, have exceeded 60 percent. According to Nepal Rastra Bank, the bank's non-performing loans had reached 60.75 percent as of mid-January of the current fiscal year.
Nepal Rastra Bank has been managing Karnali Development Bank since January 2025. The central bank appointed Deputy Directors Bishnu Kumar Bishwakarma and Jugal Kishore Kushwaha under the coordination of Deputy Director Tikaram Khatiwada to oversee its operations.
As per the financial statements for the first quarter of the current fiscal year, the bank's capital adequacy ratio stood at 10.05 percent, while its non-performing loans were at 7.27 percent. However, Nepal Rastra Bank’s monitoring revealed that bad loans had actually reached 40.85 percent, and the capital adequacy ratio had dropped below 4 percent during the review period. By mid-Jnauary, Karnali Development Bank’s capital adequacy ratio had dropped to -39.98 percent.
Currently, the central bank’s management team is focusing on recovering bad loans and returning deposits to account holders. Additionally, a due diligence audit (DDA) is underway, which is expected to provide a clearer picture of the bank’s financial health.
Janaki and Pokhara Finance in Crisis
According to data published by Nepal Rastra Bank for the period from mid-December 2024 to mid-January 2025, Janaki and Pokhara Finance are on the brink of crisis. Janaki Finance’s capital adequacy ratio has turned negative at -0.16 percent, while its bad loans have risen to 40.89 percent. In mid-September/October 2024 (Asoj), its capital adequacy ratio was -3.01 percent, and bad loans stood at 38.44 percent.
Pokhara Finance, on the other hand, has shown slight improvement. As of mid-January 2025, its capital adequacy ratio remains negative at -3.08 percent, with bad loans at 33.44 percent. In mid-October 2024, its capital adequacy ratio was -8.75 percent, and bad loans were at 41.07 percent.
Although Nepal Rastra Bank is closely monitoring both finance companies, it has not yet classified them as problematic. A central bank source stated that no decision has been made regarding their status due to the upcoming leadership transition at Nepal Rastra Bank.
As per Nepal Rastra Bank’s directives, if a financial institution’s bad loans exceed 5 percent and its capital adequacy ratio falls below 10 percent, the central bank can initiate prompt corrective action. Under these measures, the institution may be prohibited from increasing deposit liabilities, instructed to reduce expenses, and required to take steps to improve its loan recovery.
