DCGC insures Sindhu Bikas Bank deposits

HIMALAYAN NEWS SERVICE

KATHMANDU: Sindhu Bikas Bank became the first development bank to sign the deposit insurance agreement with Deposit and Credit Guarantee Corporation for the insurance of savings and fixed deposits.

The class ‘B’ financial institutions (development banks) have also started getting their small deposits insured by Deposit and Credit Guarantee Corporation (DCGC) as per the regulator’s directive.

The corporation had formally started the deposit insurance from February 27 after Capital Merchant Banking and Finance signed an agreement for similar insurance for the deposits.

The annual budget of the current fiscal year had announced the expansion of Small Deposit Guarantee Programme up to Rs 200,000 to Class ‘C’ and Class ‘B’ financial institutions as well. Last year, in the budget the government had asked the class ‘D’ financial institutions (microfinance institutions) to get their deposits insured by DCGC under the programme.

However, none of these financial institutions had got their deposits insured, the scheme gained momentum only after the central bank made the small deposit insurance up to Rs 200,000 mandatory for the Class-B and Class-C financial institutions, two weeks back.

Already four finance companies Capital Merchant Banking and Finance, Kuber Merchant Finance, Birgunj Finance, and Lord Buddha Finance have signed agreements with the corporation and some more development banks such as Ace Development Bank and Sanima Bikas Bank are planning to go for similar agreements.

According to the deposit guarantee regulation, in case of bankruptcy of a financial institution, a small depositor, who has a deposit up to Rs 200,000, will be paid the total deposit amount and interest within 90 days from the date the institution goes under liquidation by Deposit and Credit Guarantee Corporation.

Thus, the financial institutions that get their deposits insured by DCGC will be able to pay back their depositors even in case of total failure.

Deposit guarantee works as a financial safety net in the event of a bank’s failure as it protects depositors’ money. Thus, the annual budget for this fiscal year has decided to invest additional Rs 250 million in Deposit and Credit Guarantee Corporation as the contribution from government to increase the capital of the corporation to Rs 2 billion. The government holds 47 per cent stake in DCGC and 48 per cent stake is owned by Nepal Rastra Bank (NRB).

There are 81 development banks and 79 finance companies operating in Nepal at present that handle small deposits, which collectively run into billions of rupees.

DCGC will charge Rs 0.2 as guarantee fee for every Rs 100 worth of deposits.

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