A glimmer of hope has once again emerged for people who parked their hard-earned savings at now-defunct Oriental Cooperative, as the Ministry of Cooperatives and Poverty Alleviation formally declared the financial entity “problematic” on Monday and will soon form a committee to take over the troubled institution and compensate depositors.

Oriental Cooperative went bankrupt in 2013 after it disbursed loans haphazardly and allowed its key promoter, Sudhir Basnet, to illegally invest depositors’ funds in the real-estate market, which later crashed. These unsound banking practices and financial irregularities inflicted losses of around Rs5.2 billion, including Rs3.9 billion in principal, on depositors.

At that time, at least 155 other financial cooperatives had also gone bust largely because of unsound lending practices, exposure to the real-estate market and involvement of promoters in embezzlement, wiping off over Rs3 billion parked in depositors’ accounts.

Following these incidents, the government had formed a high-level commission under former judge Gauri Bahadur Karki to launch inquiry into malpractices of savings and credit cooperatives. The commission had later declared 71 cooperatives “problematic”.

However, the Cooperatives Act of that time did not give any authority to the government to declare any cooperative “problematic”. So, the label attached by the commission on troubled financial entities was “symbolic”.

But the new Cooperatives Act, promulgated by Parliament earlier this year, has given the authority to the Ministry of Cooperatives and Poverty Alleviation to make that declaration.

“We referred to that provision to formally declare Oriental Cooperative a problematic entity today,” Cooperatives Secretary Gopi Nath Mainali said. The ministry will now form a seven-member Problematic Institutions Management Committee under an incumbent or former judge.

The committee, according to Mainali, will take over the institution, evaluate the entity’s assets, address problems of victims who lost money, and settle other liabilities. “We do not exactly know how long it’ll take to complete all these works,” said Mainali.

What is also not yet known is whether the committee will look into the cases of victims who had bought apartments and housing units from Oriental Builders and Developers, which is owned by promoters of Oriental Cooperative. Oriental Builders and Developers was involved in development of over half a dozen housing and apartment projects in the Kathmandu Valley, including Oriental Colony, Chakrapath Heights at Basundhara, Dhumbarahi Apartments Phase 2, Bagmati Apartment at Sankhamul, Eastern Apartment at Kausaltar, Vegas City at Balkumari, Imperial Apartment at Naxal and Sanepa Height Apartment, among others.

Many people who had bought apartments from Oriental Builders and Developers and companies affiliated to it had previously complained that the firm had collected advance payment from them but failed to deliver the assets.

“If the apartments in question are under Oriental Cooperative, the committee will look into these cases as well,” Mainali said.

Hundreds of cooperatives had run into financial problems in 2013 largely because of lack of proper regulatory oversight.

For instance, Oriental Cooperative had opened nine branch offices in the Kathmandu Valley, Pokhara, Biratnagar, Itahari, Syangja and Parsa, although a guideline barred it from doing so. Also, promoter of one cooperative was found operating a slew of other such entities, which was illegal. Worse, authorities, at that time, were barred from imposing a fine of over Rs1,500 on cooperatives involved in malpractices, while legal action against such errant entities could only be taken if members of cooperatives

filed police complaint.