Amid commercial banks’ cold response to the central bank’s directive on deposit insurance, Nepal Rastra Bank (NRB) is coming up with some strict measures against those failing to get their deposits insured.
The central bank has issued a directive for commercial banks to get their individual deposits up to Rs 200,000 insured with the Deposit and Credit Guarantee Corporation (DCGC) after implementing the provision in B, C and C class FIs last fiscal year.
As of now, only four commercial banks—Mega, Civil, Citizens and Machhapuchhre—have got their deposits insured. Nabil Bank, Standard Chartered Bank and Nepal Investment Bank are in the process to insure their deposits, according to DCGC.
Among the measures being considered by the central bank includes, first issuing warnings and second, forbidding them to work in the areas of foreign exchange. “The next stage of punishment may be a ban on buying and selling government securities,” said a senior NRB official.
NRB Spokesperson Bhasker Mani Gyawali said the central bank will start taking action against banks if they fail to comply with the NRB directive on deposit insurance by mid-December. “For now, we have not issued any timeline considering that banks are responsible institutions and that they will comply with the NRB directive without forcing us to take action against them,” said Gyawali, who is also the chairman of DCGC.
The need for insuring deposits was realised after BFIs started landing in trouble as a result of bad corporate governance and other reasons. The process of putting in place the deposit insurance provision was initiated after Nepal Development Bank went to liquidation, putting public deposits worth millions of rupees at risk.
Although the government has decided to implement the provision on individual deposits up to Rs 500,000, the central bank has executed it on deposits up to Rs 200,000. The central bank says it will increase the limit gradually.
Bankers have been complaining that the insurance premium rate is too high. They have also questioned DCGC’s capacity. “We, however, will comply with the NRB directive,” said NIC Bank CEO Sashin Joshi.
DCGC has fixed the annual premium rate at 20 paisa per Rs 100. As per the Deposit insurance Bylaw-2010, the premium will not be refunded to member BFIs and those failing to maintain their capital adequacy ratio will have to pay an additional 10 paisa premium on half yearly basis.
However, it has been realised that DCGC’s capacity should be enhanced so as to make it able to handle large deposit insurance. That’s why DCGC is also gearing up to increase its paid-up capital. The department’s capital base currently stands at Rs 480 million and an additional Rs 500 million will be injected soon.
DCGC is scheduled to call a special general meeting on Dec 9 to make the announcement of the additional capital injection. By the end of this fiscal year, it plans to inject an additional Rs 20 million by issuing bonus shares and increase its paid-up capital to Rs 1 billion. The department plans to increase the figure to Rs 2 billion by the end of the fiscal year 2012-13.
Source: Kantipur
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