Nepal Rastra Bank (NRB) has directed H&B Development Bank to make payments of “genuine” good-for-payment cheque holders as they have claims of around Rs 820 million with the bank.

The bank was found to have paid Rs 426.1 million illegally against good-for-payment cheques that were endorsed by the bank even though depositors didn’t have adequate deposits. 

The bank’s immediate Kuleswhor branch chief Niraj Nepal, in collusion with traders Manoj Chaurasiya and Jaya Kumar Yadav, had endorsed such cheques without adequate deposits in the accounts of these traders.

A senior NRB official said H&B has been asked to make payment on “genuine” claims. He, however, said the central bank does not know which claims were genuine. “So, we have asked the bank to make payments based on its own assessment of the cheques,” he said. He also said in the case of non-genuine cheques, the bank has been asked to submit them to the authorities concerned, such as the Department of Money Laundering Investigation. 

The police have filed a case against the chief culprit, Niraj Nepal, demanding a payment of Rs 1.05 billion, while half of the amount has been demanded from eight other employees. The police have also arrested Chaurasiya and other culprits.

As a result of the fraud, bank had to make additional provisioning that brought down its capital adequacy ratio 8.10 percent and the central bank took a prompt corrective action against it. 

According to NRB, the bank had to make total provisioning of Rs 665.5 million, including for the illegally paid amount of Rs 426.1 million, Rs 142 million based on the risk after the supervision, and the bank’s existing provisioning of Rs 99.19 million.

Under the prompt corrective action, the bank has been asked to submit a recapitalisation plan, not to announce cash dividend and bonus shares, not to open new branches and collect deposits in excess of 10 percent of the deposits maintained on November 25, 2013.

The bank has also been barred from expanding credit more than the size maintained on November 23, 2013.