1st June 2025, Kathmandu
A major banking scandal has come to light in Nepal. The Central Investigation Bureau (CIB) of Nepal Police has arrested Rajendrabir Raya, the founder chairman of Karnali Development Bank, on charges of embezzling Rs. 2.5 billion.
Karnali Development Bank Fraud Case
The arrest took place on Saturday at Belahiya, near the Nepal–India border. Raya had been on the run for months. He is now under police custody.
Arrest At The Border While Attempting To Escape
According to CIB’s spokesperson, SSP Hobindra Bogati, police tracked Raya after weeks of surveillance. They arrested him as he tried to cross the Nepal–India border through Belahiya in Rupandehi.
Raya was immediately sent to Banke District. Authorities will present him to the court for a judicial custody extension.
Rs. 2.5 Billion Missing From Bank Accounts
The case involves serious financial misconduct. Police say Raya misused over Rs. 2.5 billion during his time as a top executive at the bank.
He served not only as the founder chairman but also held the CEO position from 2076 BS to 2079 BS.
Karnali Development Bank, which started in 2060 BS, had its head office in Banke. It grew into a well-known regional bank over the years. However, under Raya’s leadership, it now faces a financial crisis.
On The Run Since Investigation Began
When the investigation started, Raya disappeared from public view. He had been staying in Nepalgunj, but he went into hiding as the probe moved forward.
Police believe he tried to flee the country. His plan failed when authorities caught him at the border.
Case Under Banking Offense Act
The investigation is based on the Banking Offense and Punishment Act, 2065 BS. This law handles crimes related to banking fraud and financial abuse.
Police officials are preparing evidence to charge Raya formally. He could face long-term imprisonment if found guilty.
Authorities say this is one of the biggest banking frauds in recent years.
Nepal Rastra Bank Declares The Bank Problematic
As the case unfolded, the Nepal Rastra Bank (NRB) took emergency action. It declared Karnali Development Bank a “problematic institution.”
NRB has now taken control over the bank’s management. A team from the central bank is now monitoring its operations.
The central bank’s move followed a detailed audit. That audit revealed financial irregularities and weak internal controls during Raya’s leadership.
Internal Governance Failure
This case has exposed deep flaws in internal governance. Experts say the bank lacked strong financial checks. Board members and auditors failed to detect the massive fraud on time.
During his time as chairman and CEO, Raya allegedly approved illegal withdrawals, false transactions, and other suspicious activities.
He had a strong influence over both strategic and operational decisions. That influence allowed him to bypass normal controls.
Possible Involvement Of Other Officials
Police have not ruled out the involvement of other bank officials. Investigators are reviewing records to find out whether any board members, auditors, or managers helped in the fraud.
The CIB may soon summon more people for questioning. If new evidence surfaces, more arrests could follow.
Legal Process Has Begun
Raya is now in police custody. CIB will submit a charge sheet to the Banke District Court in the coming days.
The court will decide how long Raya will remain in judicial custody during the investigation.
Officials say they will also begin the asset tracing process. If the court allows, authorities could freeze or seize properties linked to the stolen funds.
Bank’s Customers And Employees Affected
The embezzlement has affected both customers and employees. Many depositors are now worried about their savings.
Though the bank is still operating under NRB control, the public has lost confidence. Several customers have reported delays in service and loan disbursement.
Employees say the case has damaged the bank’s reputation. Some fear job cuts if the situation doesn’t improve.
Broader Concerns For The Banking Sector
This incident raises bigger questions about banking governance in Nepal. Development banks, especially those outside Kathmandu, often operate with limited oversight.
Banking experts are now urging stronger internal audits and regulatory surveillance. They say the NRB should inspect high-risk banks more often and enforce stricter rules.
“This is a wake-up call,” said a Kathmandu-based financial analyst. “When one man can steal billions, it means the entire system needs repair.”
Recovery And Future Steps
NRB and CIB are now focused on financial recovery and legal accountability. Authorities will try to recover as much of the embezzled funds as possible.
Meanwhile, the central bank is working to stabilize the institution. It has sent a temporary management team to ensure daily banking services continue.
The case will likely influence upcoming banking policies and reforms. NRB may introduce new guidelines for CEO appointments, board transparency, and digital audit trails.
For more: Karnali Development Bank Fraud Case