Pokhara-based Civil Saving and Credit Cooperative said it was facing bankruptcy after mass withdrawals by depositors, and was appealing to other cooperatives to bail it out. The bank run occurred following media reports of its imminent collapse, officials said.

Civil Saving and Credit Cooperative, operated by the Civil Group, said on Tuesday that its cash flow had dried up. “We are not fully bankrupt, but we are facing a liquidity problem as depositors have been withdrawing their money after multiple media reports,” said Ichchha Raj Tamang, chairman of the Civil Group, who is also the founder of Civil Cooperative.

Several sources told the Post that the cooperative had overextended itself with its ambitious investment plan in the real estate, hotel and hydropower sectors, which caused it to run out of money.

The Civil Group has investments in 21 types of businesses. The cooperative has sunk a lot of money in Civil Homes, a housing company that is working on its ninth project in Godavari. So far, Civil Homes has sold more than 1,000 units of standalone houses and apartments.

Another reason Civil Saving and Credit Cooperative got into trouble is lack of good governance practice, sources said. According to the cooperative, it has invested around 90 percent of its deposits totalling Rs7.5 billion in the realty business operated by the group.

Civil Saving and Credit Cooperative’s problems started a month after the government declared Societal Saving and Credit Cooperative as troubled.

A report prepared by a commission headed by Gauri Bahadur Karki some five years ago had found 130 crisis-ridden cooperatives misappropriating Rs11 billion of people’s savings. Most of the crisis-ridden institutions, including Oriental Cooperative that alone embezzled Rs5.5 billion, landed in trouble because of their board members’ involvement in misappropriation.

Speaking at a programme, Civil Group chairman Tamang claimed that the cooperative had not violated government laws. The Cooperative Act 1992 bars cooperatives from issuing more than 20 percent of its loans to an individual borrower while Civil Saving exceeded the limit and made huge loans to its operator.

Tamang said they had started a reform process at the cooperative which includes diversifying their business. “Civil Saving is now investing in hydropower, information technology and the hospitality business, among others,” said Tamang. He refuted charges that the cooperative had conducted financial dealings with Civil Bank, a commercial bank operated by the group.

As of date, 11 cooperatives have been declared problematic by the government. In most cases, the financial cooperatives, in particular, are found to have started falling apart because of unsound lending practices, exposure to the volatile real estate market and embezzlement by their promoters.

Nama Raj Dhakal, chief of the cooperative department of Kathmandu Metropolitan City, urged Civil Saving and Credit Cooperative to implement corrective measures in time. “We are receiving complaints against the cooperative on a daily basis. If it fails to pay back the depositors’ money, we will be forced to take action against it,” said Dhakal. He urged the cooperative to create a three-year plan to revise its portfolio management and launch other measures to avoid going into liquidation.

KB Upreti, chairman of National Cooperative Bank, said the bank had invested Rs140 million in Civil Cooperative. “We could provide more loans to the cooperative to prevent it from going under if it fully abides by current laws,” said Upreti.