Kathmandu: The large-scale embezzlement scandal surfaced at Karnali Development Bank has revealed that funds were misused through direct cash withdrawals from the bank’s vault and misappropriation of rights issue proceeds.
Central Investigation Bureau (CIB) of Nepal Police uncovered that former Chief Executive Officers, heads of finance, branch managers, operations staff, signatories, cash recipients, and others responsible for handling cash or issuing payment instructions were all implicated in the embezzlement.
According to the investigation, officials withdrew cash from various bank accounts without recording it in the banking system, sent cash to other banks that was never deposited, and even facilitated payments through cheques and payment slips despite insufficient funds. These fraudulent activities occurred across several financial institutions, including the former Century, Civil, Himalayan, Laxmi Sunrise, Prabhu, Sanima, and Siddhartha banks.
The CIB report formed the basis for the District Government Attorney’s Office in Banke to file charges against 109 individuals at the High Court Bench in Nepalgunj, alleging large-scale financial misconduct.
The investigation found that over Rs 1.11 billion was embezzled through unauthorized cash withdrawals that were not entered into the bank’s system. An additional Rs 153 million sent to other banks for deposit was never credited.
Furthermore, Rs 1.5 million from inter-branch fund transfers was also misused, with no account reconciliation for an extended period.
The misappropriation extended to funds collected during rights share issues. The bank issued 50 percent and 225 percent rights shares in 2014 and 2016 respectively.
CIB’s analysis revealed discrepancies in deposits made by promoters, with large sums deposited in cash without verifying sources, falsified names and signatures, and irregular timing of deposits. It was discovered that over Rs 57 million was falsely shown as deposited without actual cash transactions, implicating former employees including Bed Prakash Singh Thakuri, Man Bahadur Chaudhary, and Samjalal Chaudhary.
The scandal also involved the creation of fake borrowers to facilitate loan fraud. Individuals and shell companies with no financial capacity were used to obtain loans.
These entities were often set up under the names of people who could be influenced or manipulated, and loans were issued based on fabricated or non-existent business information.
The report highlights that many loans were misappropriated and not used for their stated purposes. Some loans were issued without project proposals, tax clearance, or audit reports. In many cases, loans were granted under the guise of industrial financing but were never used for any industrial purposes.
Further irregularities included inflated or inaccurate collateral valuations, and in some cases, loans were disbursed without final valuation reports. Bank officials were found to have colluded with borrowers during the loan approval and recovery process. Loans were often recycled through newly formed companies to hide non-performing loans and continue the cycle of misuse.
As of March 2025, the outstanding amount from these fraudulent loans stands at Rs 971.1 million in principal and Rs 345.3 million in interest, totaling Rs 1.31 billion. Loans to 34 companies and individuals were identified as having been misused, marking this as one of the most extensive banking frauds in Nepal’s recent history.
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