The Nepal Rastra Bank (NRB) has declared Karnali Development Bank (KDB) a problematic institution and taken over its management. Following this decision, 5,028,300 units of shares of the bank have been suspended from trading. Despite NRB initiating prompt corrective actions a month ago, the bank failed to show improvement, leading to the dismissal of its board of directors on Wednesday.
In response, the Securities Board of Nepal (SEBON) suspended trading of KDB's securities on Wednesday and directed the Nepal Stock Exchange (NEPSE) to conduct a detailed assessment and submit a report with recommendations. NEPSE suspended the trading of KDB shares from Thursday, until further notice.
NEPSE Information Officer Murahari Parajuli stated that trading would resume only if KDB’s financial situation improves under NRB’s management and the bank fulfills its obligations to shareholders. Until then, investors’ shares remain effectively suspended.
During the last three trading days of the previous week, 136,896 shares of KDB were traded. However, shares purchased during this period have not been credited to investors' accounts due to the suspension. Nepal’s stock market operates on a T+2 system, where shares are credited to buyers within two days, and sellers receive payment on the third day. This disruption has left many investors concerned about their suspended assets, though some remain optimistic that NRB’s intervention will restore normalcy.
Among the major shareholders, Sabita Agrawal holds the largest stake with 139,671 shares, followed by Jaya Prasad Agrawal (120,217 shares) and Kalash Stock Market (92,210 shares). Data from CDSC indicates that 12 shareholders hold more than 16,000 shares each.
KDB has been grappling with severe financial issues. NRB flagged the bank for failing to maintain the prescribed capital adequacy ratio and for its alarming non-performing loan (NPL) ratio of 40.85%. Additionally, the bank has faced allegations of financial embezzlement, liquidity crises, and an inability to meet obligations to its depositors.
To manage the situation, NRB has formed a three-member committee led by Tikaram Khatiwada, deputy director of the Department of Banking and Financial Institutions Regulation of the central bank. Other members include Bishnu Kumar Bishwakarma, deputy director of the Department of Financial Institutions Supervision, and Jugal Kishore Kushwaha, deputy director of the Law Division. The committee has been empowered to overseeKDB’s board responsibilities, conduct special general meetings, prioritize depositor payments, recover loans, audit the bank’s finances, and investigate irregularities.
Dividend History
KDB has a history of dividend distributions for three fiscal years. In FY 2013/14, it distributed a 25% bonus shares. In FY 2014/15, shareholders received a 16% dividend (11% bonus shares and 5% cash). In FY 2015/16, the bank distributed 8% bonus shares and 5% cash dividends. However, no dividends have been distributed since.
Financial Performance
For the first quarter of the current fiscal year, KDB reported a net loss of over Rs 19.8 million. The bank’s deposits totaled Rs 5.21 billion, with a reserve fund of Rs 19.8 million. However, retained earnings were negative at Rs 203.4 million. The bank’s total assets stood at Rs 5.74 billion, while liabilities exceeded Rs 5.25 billion.
