King Gyanendra's deputy and the second most senior minister in Nepal's power hierarchy has been named in a bank scam that cost the state exchequer Nepalese 17.4 million rupees, media reports said.

Tulsi Giri, a three-time former prime minister and a trusted aide of Gyanendra's father, the late king Mahendra, has been linked to a scam in which money was taken from a state-owned bank as loan but not paid back.

Giri, a hardliner who favours a military solution to Nepal's Maoist insurgency, had gone into self-imposed political exile nearly 19 years ago.

He left Nepal to set up residence, first in Colombo, Sri Lanka, and then in Mumbai in India, finally moving to the south in Bangalore city, where he remained till he was recalled by King Gyanendra after the royal coup in Nepal in February, and appointed senior vice-chairman of the council of ministers headed by the monarch himself.

While in Nepal, Giri was a shareholder as well chairman of the board of directors of a private company, Himalaya Plastic Private Ltd. In February 1986, about two months before Giri left the country for nearly two decades, the company borrowed Rs.2 million from the state-owned Nepal Bank Limited with Giri standing guarantor.

Later, before he was leaving the country, the company called a meeting of its board which was told that since Giri was going to travel abroad often, the account would be operated by another official, Anil Kumar Gupta.

"Any loss or damage caused to the bank due to Gupta's handling of the account will be borne by the board," the minutes of the board meeting said.

Two state-owned banks, including Nepal Bank Limited, have been in the red after several companies defaulting on loan payments.

In a bid to recover the money, the banks have been urging the government to blacklist the defaulting companies. Himalaya Plastic is among these companies.

The matter came to light a few weeks ago when a weekly tabloid carried a report, saying Giri was among blacklisted borrowers.

The incident got wider publicity Saturday when the Kathmandu Post daily took up the story.

The Post also said after the tabloid broke the story that Giri's personal assistant had called up the bank to check if the blacklisted chairman was the same person as the minister.

After the bank confirmed it, Giri himself called up the bank the next day and said he had no knowledge about Himalaya Plastic and any documents naming him were fakes, the Post reported.

The Post says when it contacted Giri, the minister denied any knowledge or involvement.

"The directors told me they had paid the loan and the bank never contacted me. So I never knew about the default," he told the Post.

The incident comes at a time when a controversial probe panel formed by King Gyanendra after his forcible power takeover in February has sent the deposed prime minister, Sher Bahadur Deuba, and a former minister Prakash Man Singh, to prison on charges of graft.