Co-ops to be required to insure deposits

KATHMANDU, JUL 04 -

The Department of Cooperatives (DoC) has been working for the safety of deposits held by savings and credit cooperatives.

The department is planning to establish a deposit guarantee fund to ensure that ordinary depositors will get back their savings in case the cooperative should go bankrupt. It has planned to set up the fund in response to fears that unregulated cooperatives could result in risks to depositors of losing their savings.

Concern over the safety of deposits has grown after a series of financial institutions landed in trouble due to bad corporate governance and acute liquidity crunch. “The proposed deposit guarantee fund will insure deposits of up to Rs 600,000 of ordinary cooperative members,” said DoC registrar Sudarshan Dhakal. “We have proposed this in the draft of the planned Savings and Credit Cooperative Act.” The government has moved to regulate savings and credit cooperatives properly through the new act as the amount of cash they have been mobilising has grown substantially. The draft of the act being finalised by the DoC and the Nepal Federation of Savings and Credit Cooperatives Unions (NEFSCUN) has provisioned that cooperatives will have to contribute 0.3 percent of their deposits into the deposit guarantee fund. The fund will be mobilised by NEFSCUN after the act is endorsed.

Currently, the government has provisioned that banks and financial institution (BFIs) should get individual deposits of up to Rs 200,000 insured by Deposit and Credit Guarantee Corporation (DCGC). The DCCG has already started insuring deposits held by B, C and D class financial institutions, and it plans to insure the deposits of commercial banks also from the next fiscal year.

Of late, savings and credit cooperatives have emerged as one of the biggest holders of public deposits, almost matching the deposits growth of commercial banks. According to the DoC, savings and credit cooperatives hold Rs 98.45 billion in deposits and their lending amounts to Rs 80.7 billion. As of mid-April, their deposits have surged by a whopping Rs 54.56 billion from Rs 42.93 billion in mid-April last year.

The proposed act has a provision that a stabilising fund will also be established in order to enhance the capacity of cooperatives through training and other activities. “The cooperatives will have to contribute 0.1 percent of their assets to the fund for the purpose,” said Dhakal. “The NEFSCUN will be given the authority to mobilise this fund too.”

The proposed act will give more power to the DoC to the extent of taking over control of the management of cooperatives if they are found violating the norms and directives. Dhakal said that the DoC would submit the final draft of the act to the Ministry of Agriculture and Cooperatives soon.

Rajesh Khanal, Posted on: 2011-07-04 09:41
http://www.ekantipur.com/2011/07/04/business/co-ops-to-be-required-to-insure-deposits/336767.html