A growing crisis inside Prabhu Bank has pushed Nepal’s banking sector into a tense mood. The arrest of the CEO Ashok Sherchan, Deputy CEO Maniram Pokharel and several senior officials by the Central Investigation Bureau has raised serious concerns about how the bank was being run.
The case involves nearly 1 billion rupees in alleged loan misuse and unlawful lending. After these arrests, many industry watchers now believe the bank may need to be handled under a strict control model similar to what Nepal Rastra Bank used years ago for NCC Bank.
Understanding the NCC Model
About a decade ago, NCC Bank had faced a similar situation. There were internal conflicts, weak management and major loan irregularities. Nepal Rastra Bank eventually took full control of the bank.
At that time, the entire board was suspended. A three-member task team from the central bank ran the institution. The team reviewed loans, fixed management problems and rebuilt the bank through restructuring and new leadership. That intervention is still remembered as one of the toughest moves in Nepal’s banking history, but it saved the bank from collapse.
Why experts say Prabhu Bank might need the same treatment
Top leadership linked to major irregularities
The arrest of top executives is extremely rare in Nepal’s banking sector. A suspected misuse of nearly 1 billion rupees has shaken confidence in the bank’s financial health. Police are still reviewing more files, and early signs suggest deeper problems inside the bank.
Loan decisions appear to have been centered around a few people. Regulatory guidelines were ignored and the bank’s risk management system failed to protect it.
Consumers and investors are worried that loans were issued without proper rules. New loan approvals have stopped. Daily operations have slowed. Many believe that only a strong intervention can protect the bank’s stability.
Prabhu Bank is one of Nepal’s larger commercial banks. Its crisis could influence the confidence of depositors across other financial institutions. This has placed the issue under the category of systemic risk.
What Nepal Rastra Bank can legally do?
The Bank and Financial Institutions Act allows Nepal Rastra Bank to take decisive actions when a bank shows serious institutional failure. These include:
• suspending the board
• appointing an external or central bank-led management team
• naming an interim CEO
• conducting a special audit
• reviewing loan classification and provisioning
• enforcing capital restructuring, mergers or other corrective steps
Arrests alone will not fix the bank
The current crisis shows that the problem is not limited to a few individuals. It has exposed deeper issues such as poor corporate governance, risky lending habits and weak internal monitoring.
Simply punishing a few people will not restore the bank’s health. Structural changes are necessary. Many banking experts believe that if Prabhu Bank cannot manage the situation on its own, Nepal Rastra Bank will need to take full control under the NCC-style intervention model.
A crisis bigger than one bank
Prabhu Bank’s crisis is now viewed as a threat to Nepal’s overall financial stability. When top officials are accused of large-scale loan fraud and regulatory violations, the usual reform steps may no longer be enough.
This is why the idea of an NCC-style intervention has returned to the national conversation. Suspending the board, placing the bank under direct central bank management and restructuring it from the inside may be the only way to restore trust.
Only a swift and firm decision from Nepal Rastra Bank can protect depositors, reassure investors and prevent a larger shock to the banking system.
