Imprudent loans cost provident fund Rs 210m

Creditworthiness and good collateral are two key considerations for a lending institution before extending any loan to a client.
But the Employees Provident Fund (EPF), flouting both these considerations, issued loans totalling Rs 100 million in 2001 to Nawalparasi-based Silver Fiber Textile Mills (SFTM). Result: SFTM hasn't repaid a single rupee to EPF though the loan repayment period expired this year. The repayment amount has now swollen to Rs 210 million and SFTM is no longer in operation.

This has raised questions whether the client had malign influence on decision makers at EPF and has drawn the attention of both the employees' union there and the Commission for Investigation of Abuse of Authority (CIAA).

According to documents obtained by the Post, the EPF Board on May 24, 2001 decided to provide a loan amount of Rs 100 million to SFTM in two phases (Rs 55 million as a short term loan and Rs 45 million as long term) under consortium financing with Nepal Bangladesh Bank (NB Bank). The Board had agreed to accept the mill's fixed assets as collateral for the short-term loan of Rs 45 million, but had asked management to secure additional collateral for the long-term loan of 55 million

The management, however, released Rs 100 million without securing additional collateral. Then Administrator Rajeshraj Rajkarnikar, current Administrator Sashi Bikram Rana, and Senior Deputy Manager Laxmi Prasad Shrestha, as members of the management team, overrode the Board decision and released the loan without seeking additional collateral.

When asked why management release the loan without securing collateral, Rana said, "We released it on personal trust." He also said that the clients had agreed to submit additional collateral in six months. "But they failed to do so." However, he argued that the owners of SFTM, Thakur Pratap Thapa and Jeewan Bista, have assured repayment of the loan. But he doesn't know when.

A senior official at NB Bank says EPF shouldn't have released the loan under personal trust. "NB Bank had warned EPF about this during its consortium meeting," the official says. He also said the bank is preparing to blacklist SFTM for not clearing the loan.

Deep Basnet, current president of the EPF Board, says EPF management can't violate a decision of the Board. "The management can't release loans without securing sufficient collateral," Basnet said, adding, "If found guilty, the management will be subjected to action." He, however, said he was not familiar with the issue.

Besides the collateral issue there is also a question of how genuine the client was and whether it demonstrated necessary creditworthiness. The fact that SFTM had failed to repay Rs 67 million to Nepal Bank Limited (NBL) and was seeking the loan partly to repay NBL, leaves a big question mark over creditworthiness.

EPF has done an evaluation of the fixed assets of SFTM, which was taken as collateral for the short term loan of Rs 45 million, to ascertain how much money it can recover through the collateral. The mill's fixed assets mortgaged as collateral for the short term loan have been valued at a meager Rs 13 million.

EPF also seized 31 ropani of land belonging to SFTM after the case ended up at the CIAA. But the land is worth only Rs 500,000.

Lila Adhikari, president of the EPF union, said it is a serious financial scam and demanded investigations. In the meantime, the CIAA is also investigating the case.


Source: www.ekantipur.com