KATHMANDU, Sept 8: Nepal Rastra Bank (NRB) has taken prompt corrective action (PCA) against Grand Bank Nepal Ltd after the Class ´A´ bank failed to maintain the capital adequacy ratio (CAR) of a minimum of 10 percent.
PCA refers to a type of penalty that the central regulatory bank imposes on licensed ´A´, ´B´ and ´C´ class banks and financial institutions (BFIs) if their capital adequacy ratio falls below the prescribed level.
According to the unaudited financial statement of the Grand Bank Ltd for fiscal year 2013/14, its CAR, also known as capital fund to risk weighted average (RWA), fell to 4.07 percent last year from 13.2 percent in the previous fiscal year 2012/13.
CAR is the ratio of a bank´s capital to its risk which the central regulatory bank tracks to ensure that it can absorb a reasonable amount of loss and complies with statutory capital requirements.
Manmohan Kumar Shrestha, spokesperson of NRB, told Republica that the central bank took the decision last week after the bank´s CAR remained below the prescribed level.
"With the enforcement of PCA, the bank will not be able to distribute dividend and open new branch offices," he said, adding, "NRB has barred the bank from purchasing and leasing out fixed assets. The central bank has also restricted deposit mobilization and loan extension."
Grand Bank Ltd ended fiscal year 2013/14 in the red. It accrued total loss of Rs 1.6 billion in the last fiscal year as it had to provision Rs 1.93 billion for possible loan loss. Sharp rise in non-performing loans to 19.09 percent has hit the bank´s capital thereby bringing down CAR below the required level.
Parshuram Kunwar Chhetri, CEO of the bank, told Republica that NRB automatically takes PAC if CAR falls below the required level. He, however, vowed to bring the back on the track within a year. "Most of the bad loans will be recovered in the first quarter or the second quarter of the current fiscal year. Since most of the bad loans are backed by collateral, the bank will be able to recover them within a year," he added.
NRB Spokesperson Shrestha said the central bank will lift PCA once the bank manages to raise CAR to the required level.