Deposit insurance mandatory

HIMALAYAN NEWS SERVICE

KATHMANDU: Issuing a directive, the central bank has asked the class-B and Class-C financial institutions to insure deposits up to Rs 200,000 with Deposit and Credit Guarantee Corporation (DCGC).

Nepal Rastra Bank (NRB) is optimistic that mandatory deposit-insurance for finance companies and development banks will help attract more deposits to financial institutions.

“This is a mandatory provision and all the finance companies and development banks have to insure their deposits with DCGC,” said Bhaskar Mani Gyanwali, spokesperson for the central bank.

“The provision is beneficial to the financial institutions as they can assure the depositors that their deposits will be safe and be recovered even if the financial institutions collapse,” he said, adding that it would help boost the confidence of average depositors.

DCGC has set Rs 0.2 as guarantee fee for every Rs 100 worth of deposits held at the financial institutions. “The financial institutions will not charge the depositors any service charge,” he said.

The regulation that was passed on July 17, 2010, stated that in case of bankruptcy of any financial institution, a natural depositor, who has a deposit of up to Rs 200,000, will get the total deposit amount with interest within 90 days from the date the institution going under liquidation.

Annual budget for the current fiscal year has announced that Small Deposit Guarantee Programme introduced last year for class ‘D’ financial institutions will be applicable to Class ‘C’ and Class ‘B’ financial institutions as well. However, earlier NRB had not made the deposit insurance mandatory for Class-C finance companies and Class-D microcredits cooperatives.

The budget for the present fiscal year has also decided to invest additional Rs 250 million in DCGC to increase its paid-up capital to Rs 2 billion. “The corporation will gradually build up its capacity and be ready to provide guarantee to deposits larger than Rs 200,000, too,” informed Gyanwali, who has also served as the chairman of DCGC in the past.

The collapse of Nepal Bikas Bank made everybody involved in regulating Nepali financial institutions concerned and made them introduce a deposit security mechanism in Nepali banking system.

Moreover, with another finance company Samjhana Finance being asked explanation and United Bikas Bank being declared problematic, deposit guarantee scheme is the central bank’s attempt at safeguarding the public deposits to keep their faith intact in financial institutions.

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