Nepal Rastra Bank (NRB) has declared Karnali Development Bank as a problematic institution and taken control of its management. The central bank decided to intervene after the bank’s non-performing loans reached 40.85% despite the NRB’s earlier instruction to implement corrective measures on November 26.

A meeting of the NRB board of directors on Wednesday decided to form a three-member management committee to oversee the bank's operations. The committee is headed by Tika Ram Khatiwada, deputy director of the Department of Banking and Financial Institutions Regulation under the NRB. Its other members are Bishnu Kumar Bishwakarma from the Department of Financial Institutions Supervision and Jugal Kishore Kushwaha from the Law Division. The committee officially took charge of the bank on Thursday and has been granted the authority to perform the duties and powers of the board of directors and the special general meeting, as mandated by the law.

The NRB has tasked the committee with protecting public interests, particularly ensuring the security of depositors' savings and recovering the bank’s loans. Additionally, the committee will carry out a comprehensive due diligence audit, investigate financial irregularities, and initiate legal action if necessary.

The central bank identified several critical issues that led to this decision. Karnali Development Bank failed to maintain the required capital adequacy ratio, and its non-performing loan ratio reached an alarming 40.85%. The institution faced a severe liquidity crisis, leaving it unable to fulfill its obligations to the depositors. NRB also raised suspicions of financial embezzlement and highlighted the weak governance structure of the bank.

In its official statement, NRB emphasized, “Allowing the institution to operate in its current state would jeopardize depositors’ interests and erode trust in the banking system. Hence, the bank has been declared problematic and brought under control to protect public interests.”