Commercial banks must insure small deposits

Nepal Rastra Bank (NRB) has asked commercial banks to insure all small deposits up to Rs 200,000 to secure savings of small depositors and raise their confidence in the banking system.

The central bank enforced the much-touted insurance plan through a directive on Thursday, making its implementation mandatory for all 31 commercial banks.

This has effectively made the provision applicable across the board in the country´s banking and financial system as development banks, finance companies and micro-finance institutions were already following it.

The NRB has also asked the banks to regularly furnish quarterly details of small deposits and number of small deposit holders to Deposit and Credit Guarantee Corporation (DCGC), the state-owned deposit insurer.

NRB, however, has maintained silence over raising the ceiling of deposits that need to be insured, despite promising to do so in the monetary policy. The government in the budget speech had announced that it will raise the ceiling of insurable deposits to Rs 400,000 from existing Rs 200,000.

Nonetheless, officials said across-the-board enforcement of deposit insurance would assure depositors about safety of their money and build depositors confidence in the banking and financial system.

So far, 133 financial institutions, including 66 development banks and 67 finance companies have signed up with DCGC, insuring deposits worth over Rs 51 billion under the policy that the government launched two years ago.

Going by the DCGC bylaws, if any of these companies went bankrupt, DCGC would pay each of their depositors as much as Rs 200,000 within 15 days of receiving due report from the liquidator.

For the service, financial institutions have paid 20 paisa as insurance premium per Rs 100 of deposit per year. “The rate will be same for banks as well,” said an official at DCGC. However, Ashoke Rana, president of Nepal Bankers´ Association said the rate was higher and requested corporation to review it downward.

Likewise, the government has injected a fresh capital of Rs 250 million into the state-owned deposit and credit insurer in order to step-up its capacity to insure and repay the claims. It has also endorsed a plan to gradually raise DCGC´s capital to Rs 2 billion.

The government is also formulating DCGC Act to ensure security guarantee of deposits in all BFIs.