Prabhu Bank's former CEO among 12 charged in Rs 597 million loan-misuse case

KATHMANDU — The Special Government Attorney's Office, Kathmandu, has filed a banking-offence case against the former chief executive of Prabhu Bank Limited, Ashok Sherchan, and eleven others, asking the Commercial Bench of the High Court, Patan, to convict them and recover more than Rs 597 million the prosecution says was drained from the bank through misused loans.

The charge sheet, registered under Section 32 of the National Criminal Procedure Code, 2074, puts the total claim at Rs 597,706,009.65 — roughly Rs 59.77 crore in local terms — and seeks punishment commensurate with the alleged loss. According to the prosecution, the individual liability sought from the defendants is not uniform; it ranges from about Rs 11 crore to Rs 41 crore depending on each person's alleged role in sanctioning, facilitating or benefiting from the credit.

At the centre of the case are loans extended in the names of two entities: the Institute of Agriculture, Forest and Veterinary Science Pvt Ltd and the Ram Janaki Health Foundation Pvt Ltd, the body that runs Janaki Medical College in Dhanusha. Prosecutors contend that the money, approved on paper for a medical college and allied educational and agricultural ventures, never reached those purposes. Instead, they say, it was rerouted through a chain of accounts and a company that existed largely on file.

How prosecutors say the money moved

The investigation underpinning the charge sheet was carried out by the Central Investigation Bureau (CIB) of Nepal Police, which concluded that credit sanctioned for the medical college and related projects was diverted across multiple accounts rather than deployed on the ground. According to investigators, a paper company — described in the case file as a shell with no genuine operations — was set up to lend the transactions an appearance of legitimacy. The Institute of Agriculture, Forest and Veterinary Science Pvt Ltd, registered in Bardibas of Mahottari, is named as that vehicle.

The CIB's findings also describe a deliberate effort to keep the movement of funds below the radar. Officers say the loan proceeds were splintered and dispatched into a web of accounts in smaller tranches — a technique the report identifies as structuring, or smurfing, in which a large sum is broken up to avoid the scrutiny that a single conspicuous transfer would invite. That detail matters legally and practically: it implies the transactions were engineered not merely to misuse funds but to evade the monitoring systems meant to flag exactly such conduct.

Equally damaging, in the prosecution's account, is how the loans were approved in the first place. The charge sheet alleges that collateral was valued far above its worth and that credit was cleared without the basic due diligence a project of this size demands — including, in at least one instance, without a Detailed Project Report (DPR). Prosecutors argue that the bank's own internal credit policy and the unified directives of Nepal Rastra Bank, the central bank, were not followed in letter or spirit, and that once the loans were out the door there was no meaningful supervision of how the money was actually spent.

The accused, on both sides of the counter

What gives this case its weight is that the dock is occupied not only by borrowers but by the men who were running the bank. Alongside Sherchan, the prosecution has named former deputy chief executive Maniram Pokharel, chief business officer Rashmi Pant and chief credit officer Riwash Shrestha — in effect, much of the senior management responsible for sanctioning and overseeing large credit.

On the borrower side, the charge sheet lists Om Prasad Pandey, chairman of the Ram Janaki Health Foundation and a figure long associated with Janaki Medical College, along with the foundation's director Dev Dhungana and former chairman Dhan Bahadur Sherchan. Several former directors of the foundation — Hariman Lama, Mahavir Tamang, Dewan Rai, Suresh Kumar Tiwari and Harikrishna Bhattachan — have also been charged. Pandey was taken into custody by the CIB in early June from the college premises in Dhanusha, on a warrant issued by the High Court, Patan, before the formal indictment was lodged.

The institution at the heart of the dispute is not obscure. Janaki Medical College and Teaching Hospital was established in 2003 near Janakpur, runs a Bachelor of Medicine and Bachelor of Surgery programme under Tribhuvan University's Institute of Medicine, and operates hospitals serving the Madhesh region. That a teaching hospital of this standing should sit at the centre of a banking-fraud prosecution is part of what has made the case resonate beyond the financial press.

What the defendants say

In their statements before the court, most of the accused have advanced a version of the same defence: that they did their jobs and nothing more. Pandey has maintained that the borrowing was for legitimate business needs and that the money went towards staff salaries, running costs and other liabilities of the institution. He has rejected the allegation that he conspired with bank officials to siphon credit.

The former bank executives, for their part, have argued that the loans were approved through the bank's established procedures and that responsibility for how borrowers ultimately used the money does not rest with them. Each, in essence, has sought to draw a boundary around his own role — the borrowers pointing to operational expenses, the bankers pointing to process.

That convergence is itself notable. When responsibility is sliced finely enough — the borrower accountable only for the request, the officer only for the paperwork, the supervisor only for the sign-off — accountability has a way of dissolving in the gaps between roles. The prosecution's task at the Commercial Bench will be to reassemble that chain and persuade the court that a loss of this magnitude could not have occurred without coordinated failure, or worse, at several points along it.

A familiar template, and why it matters

This indictment does not stand alone. It is one strand of a wider reckoning that has engulfed Prabhu Bank over the past year. A parallel investigation into roughly Rs 1 billion of allegedly misused credit — tied to the bank's remittance affiliate, Prabhu Management — has already drawn in the same CEO and several other senior figures and group insiders. Sherchan, his deputy and the chief credit officer were arrested in late 2025 in connection with that matter before being released on bail. Seen together, the two strands describe not a single rogue transaction but a recurring pattern.

And it is the pattern that should worry the sector. A shell company with no real business, collateral marked up beyond its value, a missing project report, and proceeds chopped into small transfers to dodge detection — these are not exotic techniques. They are the textbook signature of connected, or related-party, lending gone wrong, the kind that prudential controls are specifically designed to catch. When the same template recurs across different borrowers at the same institution, the more troubling explanation is not bad luck but weak controls: appraisal that did not appraise, valuation that did not value, and monitoring that did not monitor.

The decision to charge the bank's most senior officers, rather than confining blame to a branch or a relationship manager, signals how the prosecution reads that failure. It locates the breakdown at the apex of the credit machinery — the level at which large exposures are cleared and risk is supposed to be owned. That framing puts real pressure on the "we followed procedure" defence, because it invites the court to ask whether procedural compliance can absolve a fiduciary when the outcome is a nine-figure hole and the warning signs were, on the prosecution's telling, plainly visible.

There is a regulatory dimension too. The alleged structuring of payments implies an attempt to slip past anti-money-laundering thresholds and transaction surveillance — which raises pointed questions about the strength of those systems inside the bank and about the reach of central-bank supervision that is meant to sit above them. Nepal's banking regulator has tended to act after losses surface rather than before; cases like this sharpen the argument that supervision needs to be preventive, not forensic.

For depositors and the market, the stakes are reputational as much as legal. Prabhu Bank is an 'A'-class commercial bank, systemically significant by virtue of its size and reach, and confidence in such institutions rests on a basic assumption that credit is extended on merit and watched after it leaves the vault. A prosecution alleging that hundreds of millions were lent into a shell and lost erodes precisely that assumption — not only for one bank, but for a sector still working to convince the public that its governance has matured.

What happens next now rests with the Commercial Bench of the High Court, Patan, which will weigh the prosecution's claim of coordinated misuse against the defendants' insistence that they each stayed within their lane. However the court rules, the case has already done something larger: it has put Nepal's questions about credit discipline, insider lending and regulatory vigilance back where they cannot easily be ignored — in open court, attached to names, and measured in hundreds of millions of rupees.