People's Finance stops transaction

KATHMANDU, June 7: Bogged down by liquidity crisis, People´s Finance abruptly shut down its transactions on Monday, without informing even the regulatory authority -- Nepal Rastra Bank (NRB).

The company was reeling hard under cash crunch mainly after the central bank withdrew a portion of its fixed deposits (about Rs 70 million) at the company which matured in mid-May.

The company had repeatedly requested the central bank to renew the deposits. Apart from that, corporate depositors too have been pressing for the payment of their matured deposits.

“The company was facing problem to repay the depositors since last couple of weeks,” said an NRB official, adding, “As its executive chairman and board of directors too preferred to remain out of contact, the deputy chief executive and the management team decided to close transactions on the day.”

Despite repeated efforts, Republica could not contact Keshav Prasad Bhattarai, deputy chief executive of People´s Finance, as his cell phone was switched off. Nonetheless, NRB officials confirmed that Bhattarai approached NRB on Monday to inform the central bank about his company´s situation.

Although rumors were rife that executive chairman Chhabi Lal Bhusal is absconding, Bhattarai informed the central bank that he was on leave since two days to attend marriage of close relatives.

Officials of the Nepal Finance Companies Association - the umbrella organization of Category ´C´ finance companies - told Republica that Bhattarai had approached the central bank officials, seeking their advice, mainly after senior players in the sector suggested him to do so. “He agreed to consult with NRB after officials of the association cautioned him that sudden closure of the service without due information and approval of the central bank could hurt the company badly, eroding its credibility,” said a source.

The company closed its head office in Tripureshwar and a branch office in Bhairahawa, pasting a notice which said ´transactions have been stopped due to technical reasons´. The notice neither disclosed when it will resume transactions, nor explained the nature of the technical problem. This had left its clients in the lurch.

NRB officials said the company was excessively relying on institutional deposits to manage its sources of fund. “The trouble surfaced when institutional depositors preferred to withdraw their deposits,” the source elaborated. The central bank still has deposits worth Rs 100 million in the company.

Records show, the company´s deposits stands at about Rs 890 million, while its loans and advances stand at Rs 1.04 billion. Of the total credit, more than Rs 800 million has gone in real estate and housing.

NRB team to dig out facts

Nepal Rastra Bank (NRB) on Monday sent a team of monitoring staff to People´s Finance Ltd to take stock of its accounts and financial position.

"We have deputed a team to dig out facts about the company as it did not disclose details of its situation,” said NRB Spokesperson Bhaskar Gyawali.

Sources at NRB said the sudden closure of transactions by the company has raised doubts in the central bank as well. "Hopefully we will get the real picture when the team submits its report on Tuesday," said Gyawali.