Nepal Rastra Bank places 18 banks under watchlist for regulatory violations

KATHMANDU: In a move to enforce stricter adherence to banking regulations, Nepal Rastra Bank (NRB) has placed 18 out of 20 commercial banks under special surveillance after suspected breaches of regulatory standards.

Citing numerous complaints received from various quarters including Nepal Police and anti-corruption agencies, NRB has initiated heightened scrutiny of these ‘A’ class financial institutions. The complaints, received on both personal and official levels, prompted NRB to conduct 37 onsite inspections over the past year.

NRB’s Bank Supervision Report for 2022/23 highlighted recurrent issues within the banking sector, particularly regarding operational risk management and policy implementation. Despite formulating internal control policies, many banks were found lacking in timely review and updating of these crucial guidelines.

Among the identified shortcomings were the absence of robust Management Information Systems (MIS) for comprehensive risk management and inadequate surveillance systems. Several banks were found issuing personal loans without proper credit appraisal, raising concerns about risk assessment practices.

Moreover, NRB pointed out deficiencies in banks’ video surveillance setups, citing issues like insufficient backup maintenance and poor visibility. The reliance on impaired cameras and suboptimal positioning compromises the effectiveness of these systems in detecting misconduct and fraudulent activities.

While Standard Chartered Bank Nepal and Machhapuchchhre Bank Limited were exempted from NRB’s scrutiny framework, others such as Laxmi Sunrise Bank and Prabhu Bank faced repeated inspections, indicating systemic challenges in the banking sector’s compliance landscape.

With the release of this report, NRB underscores the urgent need for corrective measures to address the identified lapses and ensure the integrity and stability of Nepal’s banking system.