The recent arrest of Prabhu Bank employees by Nepal’s Central Investigation Bureau (CIB) has raised concerns about the role of Nepal Rastra Bank (NRB), the country’s central bank. CIB’s investigation bypassed the NRB, which normally supervises and monitors banks, making people wonder why the central bank did not spot the issues first.
NRB’s role in banking oversight
NRB regulates Nepal’s financial system. Its duties include approving banks, monitoring financial transactions, safeguarding public deposits, and ensuring loans are properly managed. The central bank also conducts routine and special inspections every year. If it finds any wrongdoing, NRB can investigate further or ask police to take action.
In this case, CIB took direct action, entering Prabhu Bank without NRB’s formal approval and arresting employees. This move has created uncertainty in the banking sector. Many worry that normal banking risks like unpaid loans due to economic slowdown or real estate slump might now be treated as criminal acts, even when banks follow NRB rules.
Financial challenges in the sector
Banks are facing several problems:
- Some loans are not being repaid.
- NRB rules require provisions for bad loans.
- New investments are limited.
- Excess liquidity is building up.
Because of these conditions, bank employees feel insecure about taking routine decisions, even those made according to regulations, which is affecting morale and the stability of the financial system.
According to NRB, Prabhu Bank’s financial statements do not show irregularities. The central bank had conducted multiple inspections last year and found no evidence of wrongdoing. NRB claims that if any organized financial crime were found, it would formally request CIB to take action but it did not in this case. Regulators are surprised that CIB found issues that NRB did not.
Experts warn that bypassing NRB’s authority may weaken public trust in the banking system. There are also speculations that political motives could be behind the investigation, raising further concern about interference in financial regulation.
