Banks have still not been informed by the Central Bank (CB) of plans to establish a mandatory deposit insurance scheme in less than five days, aimed at providing a safety net for depositors, bankers said.
“We are not aware that it’s to be enforced on October 1, and we weren’t informed of the modalities,” a banker told the Business Times. A source close to CB noted that banks are required to pay something to the effect of 0.125% of deposits to this scheme.
“All deposit taking financial institutions will come into this net and initially we’ll get them to insure deposits up to Rs 200, 000.They’ll be required to pay a certain deposit to the Deposit Insurance Fund which will be managed by the CB," he explained, adding that banks would be informed next week.
The source said that at the moment there is Rs. 160 million in the voluntary deposit scheme that is already in place (but non-operational now) and this amount will be transferred to the mandatory deposit scheme.
He said that this scheme which would contain the cost of resolving failed banks and provide an effective mechanism for dealing with bank failures also complements the prudential regulation that the International Monetary Fund has recommended.
“There is currently no adequate safety net in the banking sector and if banks are to be liquidated or they collapse, such as was seen in the recent past, there’s no adequate safety net for the depositors, which was the main trigger for this scheme. We’ll establish a separate Act later, but for now the Monetary Board will manage it and it’s established under the Monetary Law Act,” a CB source told the Business Times.
He said the Mandatory Deposit Insurance Act as it will temporarily be called is carefully being considered by the regulator.
Bankers say that the cost factor of such a scheme has to be carefully looked into, and an efficient and cost-effective way of implementing this scheme, adding that ultimately it will be the customers who will absorb the cost when it gets transferred to the products the banks sell. |
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