Banking News – The Banking and Financial Institutions Confederation Nepal (CIBFIN) has expressed serious concern over the investigation and prosecution of individuals in connection with the collateral auction conducted by Nepal Investment Mega Bank, calling for a technical and regulatory review by Nepal Rastra Bank before further investigation or action is pursued.

Issuing a statement, CIBFIN said it believes the matter under consideration will be resolved appropriately in accordance with the Constitution of Nepal, prevailing laws, established precedents and judicial practices.

CIBFIN has raised questions about whether a bank’s legally established first-priority rights over an asset under prevailing banking laws can be rendered ineffective by subsequently introduced sector-specific regulations. It has also questioned whether the cancellation of a business license automatically transfers all assets associated with that business to the state, or whether the ownership and collateral rights legally established in favor of a bank remain valid.

The confederation said such legal uncertainties raise an important question about which laws and rights banks and financial institutions should rely on when extending loans and carrying out recovery procedures.

According to CIBFIN, the primary authority, responsibility and expertise for technical and regulatory examination of professional decisions related to lending, collateral security, loan recovery and auction procedures lie with Nepal Rastra Bank. Therefore, it has argued that the matter should first undergo the necessary technical and regulatory assessment by Nepal Rastra Bank, and further investigation or action should be considered based on its findings and recommendations, in coordination with the concerned authorities.

CIBFIN also expressed respect for the dignity, independence, impartiality and judicial process of the courts, noting that important legal disputes and complexities related to the matter are currently under consideration before the court.

The confederation said that when examining the bank’s collateral auction and related institutional decisions, the interests of the bank, protection of depositors’ deposits and loan recovery should remain central. At the same time, such decisions should be evaluated appropriately from technical, professional and regulatory perspectives.

CIBFIN warned that failing to clearly distinguish between professional banking decisions, regulatory errors and criminal acts could adversely affect the decision-making capacity of banks, institutional governance, the morale of banking leadership and public confidence in the banking sector.

It also emphasized that customer-related information, internal bank decisions, business details and personal information obtained during an investigation must be appropriately protected and kept confidential in accordance with the law.

The incident has also raised broader policy questions regarding the security and risk associated with loans extended to hydropower, telecommunications, infrastructure and other nationally prioritized or government-licensed sectors.

CIBFIN said that if a bank’s previously established ownership or security rights become uncertain following subsequent decisions concerning a business license, banks would face difficulties in assessing risks when lending to such sectors. It also questioned who should ultimately bear the additional risks arising from loans prioritized or mandated by the state or regulatory authorities.

The confederation said the government and its agencies need to pay serious attention to the potential long-term impact of such legal and policy uncertainties on lending to nationally prioritized sectors, the cost of credit, financial stability and the overall economy.

CIBFIN further argued that where there is no objective basis demonstrating clear criminal intent or a criminal offense, disputes between banks, borrowers and the government that are fundamentally civil or regulatory in nature should not be criminalized. Such matters, it said, should instead be resolved through established civil, commercial and regulatory procedures.

CIBFIN stated that no one should be above the law in a state governed by the rule of law. It said that if prohibited activities are objectively established through fair, just and prudent investigation within the framework of prevailing laws and banking practices, action should be taken in accordance with the law.

The confederation also said it remains committed to coordinating and cooperating with the concerned authorities throughout all lawful procedures, while upholding the rule of law and working toward the sustainable development of Nepal’s overall economic and banking sector and the strengthening of the national economy.