Deposit insurance mechanism soon

Good news for depositors. Their deposit in banks and financial institutions will be insured soon. Beema Samitee (Insurance Board-IB) is initiating the establishment of a strong mechanism to guarantee deposits with banks and finance companies. IB will form a deposit insurance mechanism, said IB chairman Dr Phatte Bahadur KC. "We have finished two rounds of talk with stakeholders," he added. Budget 2009-10 announced the formation of a mechanism to safeguard deposits up to Rs 2,00,000. The move was started after the failure of Nepal Development Bank Ltd last year.

IB, insurance companies, banks and finance companies have prepared a draft to secure small deposits and it is under discussion among stakeholders. "IB is welcoming comments and suggestions from the public also," said IB spokesperson Shekhar Kumar Aryal. According to Aryal, the draft has four areas of concentration ¿ protection of depositors, stability in the financial system, promotion of competitiveness in the financial sector and financial crisis rescue. Deposit and credit guarantee mechanism was first established in the United States in 1934 to safe-guard deposits in recession. Currently, 103 countries are safeguarding deposits of small to big depositors through the mechanism. "There are different mechanisms as per the needs of different countries," an officer of Deposit Insurance & Credit Guarantee Corporation Pvt Ltd said, "But it must be strong with regulatory powers."

The Nepali private sector has been providing credit protection services to banks since 1995 but Deposit Insurance & Credit Guarantee Corporation Pvt Ltd's business is limited to few banks due to lack of legal support. "If we want to cover all banks and financial institutions, a new mechanism must be backed by law," the officer said.

Bhakti Bilash Pandey of Nepal Finance Companies Association called for representation of all stakeholders in the mechanism. "Nepal Rastra Bank (NRB), banks and financial institutions and the government must be on the board," he said adding that without a guarantee from the government it cannot work properly. Devendra Gautam, assistant director of NRB, echoed Pandey and said such a mechanism cannot run without the government's guarantee on deposits.

The draft has proposed Rs 2 billion capital base for the mechanism with Rs 1 billion paid-up capital. It has proposed to sell shares equal to Rs 710 million to 26 commercial banks, 10 per cent shares to the government and 10 per cent shares to NRB. The share of finance and insurance companies is yet to be decided.
Source:THT

Read More

IB points the finger at NBIL

Insurance Board (Bima Samiti), the regulatory authority of the insurance companies — has directed NB Insurance Company Ltd (NBIL) to sell shares of subsidiary companies. "We have directed NB to sell the shares soon as possible," said board chairman Dr Phatte Bahadur KC. NBIL, promoted by NB Group, has 2,38,000 unit shares of Nepal Bangladesh Bank Ltd, Nepal Credit & Commerce Bank, Shangri-La Housing and National Hydropower. The Insurance Act 1993 forbids companies to invest in those firms which are promoted by relatives of the companies' management. NB Group has direct investment in the above-named companies including nine others.

NBIL has been violating IB's directions for a long time. "We have issued the last ultimatum to them," KC said adding if they do not obey the rules the board will take tough action. IB has also given an ultimatum to Alliance Insurance Company Ltd to build up paid-up capital as per direction till October 17. The board has set Rs 250 million for life insurance and Rs 100 million for non-life insurance companies.

IB has directed NBIL to maintain transparency in accounts. "IB found lots of irregularities in NBIL but the new management is gradually taking the right path," said KC. Within two months the new management has made a provision of retirement fund and applied transparent accounting system, he explained. It has also withdrawn company vehicles from relatives of directors. The board is working to bring new laws for effective regulation of insurance companies. IB is planning to increase the capital base of insurance companies from Rs 250 million to Rs 1 billion for life insurance and from Rs 100 million to Rs 500 million of non-life insurance companies. "Without broadening the capital base, we cannot expand the service," said IB director Ramesh Raj Bhattrai.

Budget 2009-10 made two announcements bringing new laws and insuring the deposits of small depositors through strengthening the insurance business in Nepal. "If we want to insure small depositors, the insurance system should be revamped," said Bhattarai. The Nepali insurance industry has grown 35 per cent in life and 30 per cent in non-life over the last 14 months. The number of policy holders has reached 1.84 million and total premium collection is Rs 32.75 billion. Non-life insurance policies reached 2,90,000 till September 16, 2009.
Source:THT

Read More

IB tights screw on insurance firms

The Insurance Board (IB) is not going to accept annual reports of insurance companies if the insurance on credit was also included in the income of the company. IB officials said the company would have to make provisions so that the credit amount is not reflected on its earnings. As the trend of the insuring on credit has increased in the last few years, the IB decided to tight its screw to discourage such a tendency. The non-life insurance companies had been insuring on credit amid tough competition among insurance companies. As many as 12 out of 17 non-life insurance companies have insured Rs. 130 million on credit until fiscal year 2007/08, according to IB. The companies insuring on credit are to recover from Rs. 48,000 to Rs. 30 million from such insured.

The companies are yet to submit their annual reports of fiscal year 2008/09 to the IB. But, Rastriya Beema Sansthan has not submitted its annual reports to the IB as it has been unable to hold annual general meeting for several years. IB chairman Phatta Bahadur K.C said that the regulatory body has also asked the companies to write off such amount and come clean regarding the insurance on credit while submitting their annual report for fiscal year 2008/09. The companies have also said that the tendency of insuring on credit would come down heavily amid the IB direction. "We have also reformed this process," said Deep Prakash Pandey, president of Insurers' Association. "We have stopped giving bills if we are not paid premiums."

He said that the companies were planning to register insurance policies only after payment of premiums. Those who are insured on credit don't get insurance coverage in case of damages to their vehicles, according to IB. K.K Shrestha of Everest Insurance also said that the insurance on credit decreased significantly in last fiscal year. Although the amended Insurance Act and Regulation have prohibited insurance on credit, the companies had been insuring just to show more policies amid tough competition, according to insurers. Pandey said that the amount of insurance on credit had ballooned as the corporate sectors failed to pay premium on time.
Source:Kantipur

Read More