A small but a bold step: Deposit guarantee scheme begins

KATHMANDU, Aug 1: The collapse of Nepal Development Bank last year was probably the most striking event in over seven decades long history of Nepal´s banking industry.

The failure of the bank, drawn mainly by an accumulated loss of Rs 650 million, raised a serious question about the security of deposits made by commoners in Nepal´s banking system.


Though majority of the depositors of that bank are set to get their deposits back after liquidation of the bank´s non-banking assets and recovery of loans and investment, the incident taught many lessons to Nepal´s banking industry.

One of the issues discussed widely at that time was putting some sort of mechanism in place that can guarantee deposits maintained at financial institutions, at least the small deposits to begin with.

After nearly a year long exercise, Deposit and Credit Guarantee Corporation (DCGC) -- country´s one and only institution specializing in deposit guaranteeing -- has taken a ´bold´ but a small step in guaranteeing lifetime savings of the commoners deposited at financial institutions.

"We have opened the scheme to guarantee deposits worth up to Rs 200,000 maintained at financial institutions of Category ´D´ in the name of individual person," Bhaskar Mani Sharma, chairman of DCGC, said at a program organized to inform about the scheme.

We have set Rs 0.2 as guarantee fee for every Rs 100 worth of deposits held at micro finance development bank that are classified at Category ´D´ financial institutions by the Nepal Rastra Bank, he said.

If any financial institutions under the deposit guarantee scheme goes to liquidation, DCGC will pay the insured deposit amount along with the outstanding interest to the depositors within 90 days of registration of the claim by the government appointed liquidator, said a press statement distributed at the program.

The Monetary Policy announced by the central bank last week had announced a policy of guaranteeing deposits amounting up to Rs 200,000 held at Category ´D´ financial institutions.

According to an estimate, the total amount under deposit guarantee will be around Rs 10 billion if all the micro finance institutions come under the scheme, Gyawali said. "We have just unveiled the bylaw that governs the scheme," he added.

Unfolding future capital plan of the DCGC, Gyawali said the paid-up capital of the corporation would soon be Rs 2 billion.

“In addition, we are expecting to get Rs 500 million from the government as seed money within this fiscal year. If our plan to invite commercial banks as equity partners materializes, the total paid-up capital will increase to Rs 2 billion within the next few years,” he added.

However, much will depend upon the availability of additional capital that is needed to expand the deposit guarantee scope, covering further to finance companies and development banks, classified as Category ´C´ and ´B´ respectively.

“If our plan expansion goes as expected, we will be able to cover at least the deposits maintained at finance companies within a year,” he added.

Already in operation for over three and half decades, the DCGC has so far settled deposit guarantee worth Rs 3 billion.

The government has 45.98 percent of equity share at the corporation followed by Nepal Rastra Bank that owns 47.12 percent. Nepal´s two oldest commercial banks, Nepal Bank Limited and Rastriya Banijya Bank, also own 4.6 percent and 2.3 percent equity shares respectively.

Source: http://www.myrepublica.com/portal/index.php?action=news_details&news_id=21728