Pokhara Finance, a national-level financial institution, is heading towards a critical financial crisis. Its non-performing loans (NPL) have been continuously increasing, and its capital adequacy ratio has fallen below the regulatory standards, prompting Nepal Rastra Bank (NRB) to consider immediate corrective measures.

A source from NRB stated that action is required as the company has not improved its financial condition despite prior instructions. "We are analyzing the condition of the finance company," the source said. "Its current financial situation necessitates immediate corrective action."

According to the company’s data up to mid-October 2024 in the current fiscal year (FY2023/24), it has collected deposits amounting to Rs 12.39 billion and disbursed loans totaling Rs 7.57 billion. However, during the same period, the company incurred a loss of Rs 49 million.

The NPL ratio of Pokhara Finance has surged to 14.44% as of mid-October 2024, compared to 4.13% in the same period of the previous fiscal year. Similarly, its capital adequacy ratio declined from 14.29% in mid-October 2023 to 10.99% this year. As per NRB’s regulatory framework, financial institutions with an NPL exceeding 5% and a capital adequacy ratio below 10% are subject to prompt corrective action (PCA).

NRB’s PCA provisions allow the central bank to instruct such financial institutions to limit deposit liabilities, recover bad debts, and reduce operational expenses. However, a source from NRB clarified that while Pokhara Finance is under PCA, the central bank is not yet considering taking control of its management.

Recently, NRB declared Karnali Bikas Bank as a problematic institution on December 25, 2023 and took over its management after the bank failed to improve despite PCA measures.

Meanwhile, NRB has also initiated the process of appointing a management committee member for Share Markets and Finance, which has been categorized as problematic for an extended period. The central bank has shortlisted four candidates for this role.