Central Bank’s 100 % guarantee on finance company deposits
View(s):In an unprecedented move, the Central Bank (CB) has been directed to provide a 100 percent guarantee on deposits of all registered finance companies with effect from end January 2016 to provide the depositors with a sense of comfort and security, the 2016 budget revealed.
So far there hasn’t been any such CB guarantee although the purpose of supervision and regulation of the bank was to protect the depositors, a senior official of the CB said.
The regulation and monitoring of registered financial institutions are vested in the CB but this did not mean that it would guarantee all deposits, he said, adding that now CB has been asked to guarantee deposits in finance companies from 2016. In the wake of Golden Key Credit Card Company collapse in 2008, the CB introduced a Deposit Insurance Scheme (DIS) in 2010 which came into effect in 2012 to protect around 13 million small scale depositors with deposits of Rs. 200,000 or less at licensed and registered commercial banks and registered financial institutions
The new guarantee on deposits will enhance public confidence in financial institutions, Abans Finance PLc Managing Director Kithsiri Wanigasekera told the Business Times adding that it will resurrect some of the finance companies which were on the verge of collapse.
This move will also encourage savings among depositors and it is good for the country’s economy in the long run, he added. A Financial Institution Restructuring Agency (FIRA) on the lines of the Resolution Trust Corporation in the US will also be established shortly to help failing finance companies to be recapitalised and their troubled assets to be taken over by this agency for purposes of restructuring.