Karnali Development Bank Limited Announces Share Capital Reduction for Restructuring

17th November 2025, Kathmandu

Karnali Development Bank Limited (KDBL), currently categorized as a distressed financial institution, has officially informed its shareholders regarding a drastic reduction in its share capital.

KDBL Share Capital Reduction

This critical measure is a central component of the bank’s ongoing restructuring process, executed under the direct orders and directives issued by Nepal Rastra Bank (NRB). The official notification was published on 1st Kartik 2082 (17th October 2025), following NRB’s decision dated 10th Mangsir 2081.

The Genesis of the Restructuring

The intervention by the central bank was triggered after Nepal Rastra Bank declared Karnali Development Bank Limited a problematic institution. This classification led to the appointment of a special management team tasked with overseeing the bank’s operations, management, and comprehensive financial review.

During a meticulous due diligence audit conducted by the appointed management group, severe financial irregularities and deep instability were uncovered:

Capital Depletion: The audit revealed a significant depletion in the bank’s existing paid-up capital, rendering it insufficient for operational stability.

Asset-Liability Imbalance: It was discovered that the bank’s liabilities had surpassed its asset base, creating a precarious financial position that jeopardized depositors’ funds.

Illegal Contributions: The audit also identified that certain capital contributions from shareholders had been accounted for illegally, further necessitating a fundamental reset of the capital structure.

The Mandate for Capital Reduction

In response to these findings, NRB has issued a strict mandate requiring the bank to reduce the paid-up share capital of all affected shareholders. This reduction is severe, mandating that shareholders listed in the notification will only retain 1 percent of their existing shareholdings.

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This decisive action is being executed under specific provisions of the Nepal Rastra Bank Act, 2058, specifically citing Section 86 (ga), 86 (ja), and Section 86b. This legal framework is designed to ensure that the bank’s restructuring aligns with regulatory guidelines and, most importantly, protects the interests of legitimate stakeholders, particularly the depositors.

Impact on Founding and General Shareholders

The share capital reduction is being applied universally, impacting both founding shareholders (promoters) and general shareholders (public) of the bank.

Founding Shareholders: Prominent founding shareholders, including individuals such as Rajendra Veer Rai, Pashupati Dayal Mishra, Tara Gurung, Asant Veer Rai, Om Prakash Rana, and Vishnu Prasad Kakshapati, are subject to this reduction. For a clear example, individuals like Rajendra Veer Rai and Rudra Veer Rai, who previously held a combined total of 753,404 shares, will now see their total shareholding reduced to 7,534 shares—exactly 1 percent of their original holding.

General Shareholders: General shareholders are equally affected. Names listed in this category, such as Yuvraj Adhikari, Tara Gurung, Om Prakash Azad, Nan Gurung Seni, and Sunalo Investment Pvt. Ltd., will also see their shares recalculated and reduced to 1 percent of their former holdings to align with the new capital structure mandated by NRB.

The primary reason for this capital adjustment is to inject financial stability into the bank. By drastically reducing shareholder capital to absorb the losses incurred where liabilities exceeded assets, NRB aims to create a viable foundation for KDBL to stabilize, restore liquidity, and begin the process of regaining depositor confidence.

NRB Supervision and Future Steps

The NRB-appointed management group remains actively engaged, overseeing the bank’s day-to-day operations, including rigorous asset-liability management and ensuring compliance with all regulatory requirements. The multi-phased restructuring plan involves:

• Executing a detailed valuation of the bank’s assets and liabilities.
• Identifying and legally addressing irregularities in past capital contributions.
• Systematically reducing the share capital to a sustainable level.
• Aligning the bank’s operations strictly with NRB directives and financial stability objectives.

The reduction in share capital is a painful but critical step toward the eventual revival of Karnali Development Bank Limited. Under stringent NRB supervision and a structured management plan, the bank is working towards resuming normal banking operations in a compliant, sustainable, and responsible manner, thereby protecting the wider financial system. Stakeholders and the public are advised to monitor official communications from NRB and the bank’s management for further procedural updates.

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