Financial Integrity Crisis: Prabhu Bank CEO, DCEO arrested while IMF pushes independent audit of Nepal’s major lenders

KATHMANDU: Prabhu Bank Chief Executive Officer Ashok Sherchan has been arrested by Nepal Police’s Central Investigation Bureau (CIB) on charges related to banking offences, intensifying concerns over corporate governance and financial crime in Nepal’s banking sector at a time of rising global scrutiny.

CIB spokesperson Shivakumar Shrestha said CEO Ashok Sherchan and Deputy CEO Maniram Pokhrel, along with several other officials, were taken into custody from the bank’s central office on Sunday. The arrests were made as part of an investigation into alleged banking fraud, financial misappropriation, and irregular loan handling, according to CIB officials.

Authorities said more individuals linked to the case have also been detained, and further details will be made public after initial interrogation. The case is being investigated under Nepal’s Banking Offence and Punishment Act, which covers activities such as unauthorized lending, fund diversion, and breach of fiduciary responsibility.

The arrest comes at a sensitive moment for Nepal’s financial system, where issues of loan quality, bad debt accumulation, and weak internal controls have drawn increasing concern from both domestic regulators and global financial institutions.

GLOBAL PRESSURE ON NEPAL’S BANKING SYSTEM

The timing of Sherchan’s arrest follows a major development in Nepal’s financial oversight landscape. A Bangladeshi audit firm has begun reviewing the loan portfolios of Nepal’s ten largest commercial banks, including top A-class banks, to meet a mandatory requirement set by the International Monetary Fund (IMF) under the Extended Credit Facility (ECF).

The independent audit officially commenced on September 1, after months of delay and growing pressure on the Nepal Rastra Bank (NRB) to improve transparency, risk management, and financial reporting standards.

The IMF had warned that Nepal’s banking sector needed an urgent external review due to concerns about the true quality of loans, especially those issued during the COVID-era refinancing program, which many analysts say may have masked non-performing assets.

IMF officials had publicly expressed frustration with NRB’s repeated postponements in appointing an auditor, raising fears about financial stability, governance gaps, and the country’s investment climate as Nepal faces slowing economic growth and liquidity stress within the banking system.

ARREST ADDS TO REGULATORY TIGHTENING

Sherchan’s arrest is expected to intensify the spotlight on Nepal’s A-class commercial banks, many of which are already under pressure as the international audit progresses.

Analysts say the incident underscores the urgent need for stronger regulatory compliance, anti–money laundering controls, corporate governance reforms, and sector-wide transparency to restore confidence among global investors and development partners.

With digital banking expansion, rising fintech adoption, and growing cross-border transactions, experts warn that Nepal’s financial institutions must strengthen cybersecurity, fraud detection, and risk assessment frameworks to avoid systemic risks.

CIB officials said the investigation will continue in coordination with the NRB, and further arrests or actions could follow depending on the audit findings and additional evidence.

Authorities are preparing to release more details on the specific charges against the Prabhu Bank executives after formal statements are recorded.