Police on Tuesday arrested 10 people, including the incumbent senior deputy chief executive officer of Prabhu Bank and former chief executive of the erstwhile Century Bank, on the charge of banking offence for extending loans without adequate collateral from Century Bank.

Manoj Neupane, senior deputy chief executive officer of Prabhu Bank who served as the CEO of Century Bank in 2022 before its merger with Prabhu Bank, and Tulasi Gautam, another former CEO of the bank, were among those arrested by the Central Investigation Bureau (CIB) of Police, the CIB said in a statement.

All 10 accused were arrested from various parts of Kathmandu Valley and have been taken into custody for seven days as per the order of the Patan High Court, the police stated.

According to police, they were involved in providing loans to various firms owned by Rabindra Chaulagain, who is now in judicial custody, and other board members of the Deurali Multipurpose Cooperative without adequately valued collateral to provide loans amounting as much as Rs2.11 billion.

The loans were provided to the firms—including Puja Trading and Marketing Company; Three Brothers Marketing Pvt Ltd; Puja Marketing Pvt Ltd; and Annapurna Distillery Pvt Ltd—against the collateral valued at just Rs1.14 billion. This means that they provided loans exceeding the collateral value by Rs974.17 million, according to the CIB. As per the banking norms, nobody can be provided loans beyond the value of the collateral deposited.

Superintendent of Police Habindra Bogati, spokesperson for the CIB, said that an incident of banking offence came to light during the investigation against Chaulagain, who is in judicial custody for committing fraud at the cooperative he promoted. “We had not received separate complaints against them,” he added.

On October 5, last year, CIB had arrested Chaulagain after the depositors complained about his cooperative not returning their deposits. At that time, he was arrested for the embezzlement of Rs44.99 million deposited by the public, according to the CIB.

But during the course of the investigation, more irregularities at the hands of Chaulagain came to light. According to media reports, Chaulagain has taken loans from many other banks without adequate collateral.

In recent years, promoters of several cooperatives have run away with the deposits from the public as the laws regulating the cooperative sector are weaker compared to those governing the banks and financial institutions.

Chaulagain has also been defaulting on loans taken from the erstwhile Century Bank. Prabhu Bank, which acquired Century Bank in January last year, issued a notice on June 8 in the name of Chaulagain and other debtors to pay the loans while also inviting sealed bids to auction off the collateral given by Chaulagain and others.

The Nepal Rastra Bank was also informed about the alleged irregularities at the hands of the two former CEOs.

An official at the central bank told the Post on condition of anonymity that it had questioned Prabhu Bank about the loans that Chaulagain had taken.

“We had ordered Prabhu Bank last year to make provisioning of over Rs1 billion,” said the NRB official. “At that time, loan exposure to Chaulagain’s firms was over Rs2.04 billion.” With Chaulagain’s firms defaulting on the loans now, Prabhu Bank will be required to make more provisioning.

Under loan provisioning, banks must reserve an amount depending on how long the loan has been defaulted. They cannot count the sum as profit.

Other people arrested by the CIB include Dilip Baral, Subas Bahadur Shrestha, Anupama Shrestha Manandhar, Sabin Ghimire, Raman Shrestha, Dipesh Pradhan and Sunil Basnet.