The central bank, Nepal Rastra Bank (NRB) has recently indicated that it would tighten the grip on the financial criminals not only by introducing more effective regulation and supervision policies, but also by acting as the enforcer of these policies.

 

The NRB has chosen to take up the role of arresting the financial criminals in direct co-work with police. Instead of earlier arrangement of going through the Ministry of Finance (MoF) with a suspect lists and the line ministries passing out buck from MoF to Home Ministry, from Home Ministry to District Administrative offices and then to the District Police, this NRB initiative would surely shorten the process of apprehending the absconded ones. It is reported that the MoF has given consent to NRB to directly deal with the police to initiate the process of arrests. Similarly, NRB is also reportedly formulating a policy to liquidate those financial institutions whose promoters or executives remain absconded for long.

 

In light of the growing incidents of abscondence of the promoters and executives of some development banks and finance companies, the NRB move appears a welcome one. It is also true that in Nepal among all the criminals, the financial ones largely remain scot free by using every possible influence including, may be, money.

 

Such NRB activism also seems convincing vis-a-vis the central bank's responsibility of maintaining financial system stability in the country. But the core question here is: will these moves actually contribute the promotion of corporate governance in this sector? And, do these schemes fit in the concept of ‘slim and smart central bank focused on its core functions?

 

Unquestionably, the criminals must be brought to book and justice delivered. But NRB initiating the legal process on its own will have several other ramifications. First, it must have a stronger and larger legal department. Second, the government dealing directly with the law-enforcing agencies is always more effective. And, third, as the experiences have it, the problem in apprehending the allegeds lies largely in the police functioning. At that crucial point, NRB move may falter. NRB cannot be expected to be able to change the attitude and modus operandi of the police.

 

Also the very idea of liquidating the entire institution just because a fraudulent person, who happened to be a decision maker, remained at large is not at all justifiable. One of the cardinal responsibilities of the NRB is to protect the depositors interest first, which in turn, facilitates the system stability. If any promoter or executive flees away, the moral responsibility should also be taken by the NRB as well. And, as the regulator, the decision of liquidating the financial institutions must be based on the financial health of the institution and its future viability. Let's not forget that there is a specialised legal mechanism already in place to deal with corporate liquidation/bankruptcy. The clients have made no mistake by doing business with the NRB licensed and supposedly supervised companies and they must not suffer for the fault of somebody else.

 

The NRB must understand that it can neither escape from its responsibility of maintaining the financial stability by enhanced regulation and supervision nor should it be turned into a police like organisation.