NRB for special act on deposit insurance

Following the government's policy announcement of introducing deposit insurance from this year, Nepal Rastra Bank (NRB) has suggested that the institution that insures the deposits be formed under a special act. NRB has also submitted its concept paper to the Finance Ministry. While the government is yet to decide whether to treat this scheme as insurance or a financial scheme, the central bank has said that it should come under the deposit guarantee scheme and not insurance.

It has given two options regarding the institution dealing with deposit insurance --either upgrade the existing Deposit Insurance and Credit Guarantee Corporation (DICGC) or form another institution. Given the huge transactions associated with this scheme, the DICGC is in no position to guarantee deposits with its present financial strength. Its paid-up capital is just Rs. 70 million.

NRB has proposed that the company that runs the deposit insurance scheme have a paid-up capital of at least Rs. 1 billion. For this, all the stakeholders including the government, NRB and other financial institutions should be asked to buy shares in the institution that provides deposit insurance. A senior NRB official said that bankers were also agreeable to injecting money into the institution that insures deposits.

Sashin Joshi, president of the Nepal Bankers Association, said that they were at the final phase of preparing their own report and would be submitting it to NRB within a few days. A DICGC official said that the DICGC could generate capital of Rs. 310 million from the existing shareholders including the government, NRB and a few other banks. "Other stakeholders including banks and financial institutions could inject money to raise its paid-up capital to Rs. 1 billion."

The DICGC source said that it was ready to shoulder the responsibility if it was upgraded. The DICGC has not been getting enough business after NRB phased out priority sector lending from the banks. The government announced through the budget for the current fiscal year that it would ensure the compulsory insurance coverage for individual deposits up to Rs. 200,000 in both fixed and savings accounts this year.

Joint secretary at the Finance Ministry Bimal Wagle said that the ministry was initiating the discussion process on deposit insurance and the ministry had sent a proposal regarding the issue to the NBA. When NRB views that deposit insurance is not an insurance policy, the Insurance Board (IB) is of the view that it should be considered as an insurance scheme. IB chairman Phatta Bahadur K.C. said that it should be operated as per the principles of insurance. "There should be a re-insurance back-up for this scheme," said K.C.

President of the Develop-ment Banks Association Jhapat Bohora said that the responsibility of insuring deposits could be given to insurance companies as they get reinsured. "It is better to give the responsibility of regulating the company that insures deposits to the IB," he said.
Source:eKantipur