Confederation of Banks Warns of Impact on Banking Sector Due to Investment Mega Bank Auction Case

Kathmandu. The Confederation of Banks and Financial Institutions Nepal (CBFIN) has expressed serious concern over the investigation and prosecution of the leadership of Nepal Investment Mega Bank in the collateral auction case. CBFIN has warned that this will have a serious impact on the entire banking sector, stating that criminal cases have been filed over the collateral auction conducted by the bank under regular procedure. A statement issued by CBFIN's Director General Roshan Koirala stated that the investigation and prosecution without clearly distinguishing between commercial banking decisions, regulatory errors, and criminal acts will adversely affect the decision-making capacity, institutional governance, morale of leadership, and public trust in the banking sector. CBFIN has reminded that the primary authority and expertise to technically and regulatorily examine commercial decisions related to loan disbursement, collateral security, loan recovery, and auction lies with the regulatory body, Nepal Rastra Bank. CBFIN's conclusion is that the investigation should be initiated by other bodies only after a technical examination by Rastra Bank. The statement mentions that this case has raised a serious question as to whether the collateral rights created by the bank in accordance with the law are automatically invalidated and all assets go into state ownership upon the cancellation of any business license. CBFIN has stated that the lack of clarity on whether the subsequently implemented regulations can or cannot nullify the bank's primary rights has created confusion for banks in loan recovery. This incident has raised policy questions regarding the security of loans disbursed in sectors based on government licenses such as hydropower, telecommunications, and infrastructure. CBFIN has warned that if the bank's security rights become uncertain due to the cancellation of licenses, it will be difficult for banks to disburse loans and take risks in such nationally prioritized sectors. The government has been alerted that such policy uncertainty will have a long-term impact on the overall economy and financial stability. CBFIN has demanded that the tendency to criminalize civil and regulatory disputes between banks, borrowers, and the government regarding transactions and rights, in the absence of a clear criminal intent, be discouraged. The confederation has also emphasized the need to protect customer and bank confidentiality during investigations.