Nepal witnesses a steep rise in banking offense cases

Amidst the country’s economic downturn, there has been a sharp upswing in banking offense cases in the last fiscal year. Both large and small businesses, along with individuals, have encountered difficulties in meeting their financial responsibilities on time, which according to Nepal Police has resulted in a rise in banking offense cases. 

The statistics of Nepal Police show such cases increased by 124 percent in terms of number and 386 percent in terms of amount in FY 2022/23. A total of 12,128 cases of banking offenses with the amount equal to Rs 69.15bn were registered in the last fiscal year. 

The majority of banking offense cases were related to cheque bounce, followed by denial by cooperatives to withdraw depositors' money.

Out of all the banking offense cases, an overwhelming 99 percent were associated with bounced or dishonored cheques. According to the Banking Offense and Punishment Act of 2008, failing to honor a written check three times due to insufficient funds in the account is considered a banking offense. Police records indicate that a staggering 12,030 cases were filed for bounced cheques, involving a total sum of Rs 47.50bn.

The second-highest number of registered banking offense cases pertains to cooperative institutions, where depositors have faced difficulties accessing their deposited funds. A total of 53 cases related to cooperative fraud have been recorded, involving a substantial amount of Rs 18.82bn.

The data reveals a significant spike in both bad check cases and cooperative fraud cases in the last fiscal year compared to the preceding one. In FY 2021/22, there were 5,370 cases involving bad cheques, amounting to Rs 6.71bn, and 15 cases related to cooperative fraud, totaling Rs 7.39bn.

In most cooperative fraud cases linked to defaults, promoters have gathered deposits by enticing depositors with the promise of substantial returns. They then invested these funds in unproductive sectors such as real estate. When depositors sought to retrieve their money, the promoters were unable to fulfill their obligations.

Out of the 32,000 cooperatives operating in the country, the bulk of the problematic ones belong to the category of savings and credit cooperatives. The Department of Cooperatives has identified issues in approximately 125 cooperatives.

Thousands of individuals who entrusted their hard-earned money to these cooperatives are now facing difficulties as the operators have become unreachable. In cases where contact is still possible, depositors are being informed that an immediate return of their deposits cannot be facilitated.

Experts link the increase in banking fraud to the ongoing economic turmoil. The market has experienced a disruption in the circulation of money, primarily due to an extended liquidity shortage and a decrease in overall demand. Furthermore, the higher interest rates imposed by banks and financial institutions have had a severe impact on small businesses.

Companies and individuals issue cheques of a certain date to settle their business and personal transactions. However, due to the recent downturn in business, the ability of companies and individuals to pay their creditors has weakened. People often issue bad cheques to their creditors to avoid a difficult situation.

.Both companies and individuals commonly use dated cheques to settle their commercial and personal transactions. Nevertheless, owing to the recent decline in business conditions, the capacity of both companies and individuals to meet their financial obligations has diminished. As a means of circumventing a challenging predicament, individuals frequently end up issuing insufficient funds checks to their creditors. Nepal Police Spokesperson Kuber Kadayat said that the number of banking fraud cases has increased due to the recent economic crisis.

According to police data, cases related to banking fraud have been increasing every year. There were only 755 banking offense cases registered by the Nepal Police in FY 2017/18 which continued to surge in the next two fiscal years. However, there was some decline in the registration of fraud cases in FY 2020/21. However, in the last two years, banking offense cases have again started to increase. Along with the cases, the monetary amount of banking fraud has also surged.

According to police statistics, instances of banking fraud have been on a consistent upward trend over the years. In the fiscal year 2017/18, Nepal Police recorded just 755 banking offense cases, but this number steadily rose over the following two fiscal years. However, there was a slight reduction in the incidence of fraud cases during FY 2020/21. Nevertheless, over the last two years, the occurrences of banking offenses have once again started to climb, and concurrently, the monetary value associated with these fraud cases has also surged.

Banking Offense Cases