deposits (up to Rs 200,000) insurance provision comes into effect

KATHMANDU, FEB 28 -

After one-and-a-half years of its announcement, the deposit insurance provision came into effect from Sunday.

Two finance companies—Capital Merchant Banking and Finance and Kuber Merchant Finance—on Sunday singed an agreement with Deposit and Credit Guarantee Corporation (DCGC), the agency assigned to insure deposits, in this regard.

Capital Merchant became the first financial institution to sign the agreement with DCGC for deposit insurance, said a DCGC press release. The government had first introduced the provision in last year’s budget. As per the budgetary provision, ‘B’, ‘C’ and ‘D’ class financial institutions should get their deposits up to Rs 200,000 insured.

In the wake of Nepal Development Bank’s liquidation, the policy was introduced to tackle such risks. Recently, the Nepal Rastra Bank (NRB) had also directed ‘B’ and ‘C’ class financial institutions to get their individual deposits up to Rs 200,000 insured with DCGC Although the NRB has already directed ‘D’ class FIs to insure deposits, they are yet to get their deposits insured.

DCGC will have to insure an estimated amount of Rs 30 billion deposited in ‘B’ and ‘C’ class financial institutions, according to NRB. They have an estimated deposits of around Rs 150 billion.

The DCGC has fixed the annual premium of the insurance at 20 paisa per Rs 100. As per the Deposit Insurance Bylaw-2010, premium will not be refunded to member FIs. FIs failing to maintain their capital adequacy ratio will have to pay an additional 10 paisa premium on half yearly basis. Insurance can be claimed if any FI is liquidated. The liquidator can claim a maximum of Rs 200,000 including principal and interest, as per the bylaw.

The government also plans to strengthen the financial status of DCGC, as it has to insure a huge amount of deposits. Currently, it has a paid up capital of Rs 230 million and the government has pledged to provide Rs 250 million in this fiscal year.The government aims to increase its paid up capital to Rs 2 billion. The government will have 90 percent stake in the company,

while the central bank will have 10 percent.

Posted on: 2011-02-28 09:09
http://www.ekantipur.com/2011/02/28/business/deposit-insurance-provision-comes-into-effect/330254.html