Prabhu Bank corporate finance chief arrested in loan misuse case, NRB directive violations under probe

KATHMANDU: Nepal Police has arrested Dinesh Dangol, Head of Corporate and Project Finance at Prabhu Bank, on charges related to banking offenses, including alleged misuse of loan disbursements and violation of regulatory directives issued by the central bank.

According to Senior Superintendent of Police Shiva Kumar Shrestha of the Central Investigation Bureau, Dangol was taken into custody on Tuesday following an arrest warrant issued by the Patan High Court. The case has been registered under banking offense provisions, signaling a potentially serious breach of financial governance norms.

Allegations: Loan Misuse and Regulatory Breach

Investigators allege that Dangol was involved in facilitating or enabling the misuse of loans disbursed by the bank—either through weak due diligence, diversion of funds, or collusion in improper lending practices. The accusion centers on actions that allegedly contravened directives issued by the Nepal Rastra Bank, particularly those governing credit risk assessment, end-use monitoring, and corporate lending compliance.

Sources indicate that the loans in question may have been diverted away from their intended project or business purposes, raising red flags around internal controls and compliance mechanisms within the bank’s corporate finance division.

Why This Happened: Systemic Gaps and Pressure Lending

Preliminary investigation suggests multiple contributing factors behind the case:

• Weak Credit Appraisal and Monitoring: There are indications that proper project evaluation and post-disbursement monitoring protocols may not have been adequately followed, allowing borrowers to misuse funds.
• Possible Collusion or Insider Facilitation: Authorities are examining whether internal officials, including Dangol, knowingly approved or overlooked irregularities in loan processing.
• Regulatory Non-Compliance: The central bank has tightened guidelines in recent years to curb non-performing loans and financial irregularities. Any deviation from these norms—especially in large corporate lending—can trigger criminal liability.
• Pressure to Expand Corporate Lending: Nepal’s banking sector has faced intense competition and pressure to grow loan portfolios, particularly in large-scale projects. This environment can sometimes incentivize aggressive or non-compliant lending behavior.

Wider Probe: Senior Executives Under Scrutiny

The case is not limited to a single individual. The CIB has already extended its investigation to former CEO Ashok Sherchan of Prabhu Bank, examining whether top-level management oversight failed or if there was institutional complicity.

Additionally, Hem Kumar Mahaju—associated with Prabhu Management and previously involved in the bank’s accounts division—has also been investigated in connection with the same financial irregularities.

Sector Implications

This development highlights increasing regulatory enforcement in Nepal’s banking sector, particularly amid concerns over rising non-performing loans, governance lapses, and misuse of credit in project financing. The involvement of senior banking officials underscores potential systemic risks and raises questions about internal audit effectiveness, board oversight, and compliance culture within commercial banks.

The case is expected to evolve further as authorities deepen forensic audits and trace financial flows linked to the disputed loans, potentially leading to more arrests or regulatory actions.