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Enacting deposit protection law drags on for years

Jasim Uddin Haroon | January 19, 2019 00:00:00


The enactment of deposit protection law is getting delayed as the government is yet to take any concrete step in this connection.

Deposit insurance is a system established by the government to protect depositors against the loss of their deposits in the event of failure of a bank to meet its obligations.

Currently such a deposit insurance system has been in operation since 2013 but it has limited coverage, even it has excluded many financial institutions including the non-bank financial institutions (NBFIs), which also take people's deposits.

However, the Bangladesh Bank (BB) sent the proposed law for consideration to the government sometime in 2017. Later, it re-sent the draft sometime in 2018 after revising.

But the proposed law did not proceed optimally as it needs the cabinet's go-ahead before being approved by the Parliament.

When contacted, officials at the Financial Institutions Division (FID) told the FE on Wednesday that they will now go ahead with the law.

"Surely, we'll proceed with the matter from now on," said Rizwanul Huda, a joint secretary of the Division, who deals with the mater, told the FE on Wednesday.

Officials familiar with the matter at the Bangladesh Bank (BB) told the FE that a deposit exceeding Tk 100,000 remained outside the risk coverage in the absence of a law.

Currently, if any bank goes bust or fails to meet liabilities, then depositors will get back Tk 100,000 regardless of how large the size of deposits with bank is.

"Actually, one of our key objectives of framing a new law is to raise the deposit coverage," said one official at the central bank of Bangladesh.

He said if Tk 200,000 individual deposit is covered then over 90 per cent of the total deposits of the banking system could be brought under risk coverage. The banking system has around 124 million total banking accounts.

He also said if the proposed law is passed deposits belonging to the country's non-banking financial institutions will come under the coverage, which now operating without risk coverage.

Top executives of private commercial banks support the idea, saying it will boost depositors' confidence.

But some of them raised the reservations about the existing premium rates, arguing this is too high.

Syed Mahbubur Rahman, chairman at the Association of Bankers, Bangladesh Limited, told the FE: "We always welcome such steps as it will protect depositors' money if any bank goes into liquidations or face any trouble in meeting its liabilities."

He, however, said the existing premium rate is too high, which impacts the banks' profitability.

Banks pay the premium as its own expense.

The existing premium rates varie with the nature of banks, some pay at the rate of 0.08 per cent, some 0.09 per cent and the problem banks pay at the rate of 0.10 per cent.

Anis A. Khan, managing director and CEO at the Mutual Trust Bank, told the FE that this is a good move as it promotes bank deposit and covers risks.

"In my view this will help depositors' confidence to grow."

This is the key element in maintaining the financial stability, he added.

In the meantime, the BB has approximately Tk 789 billion (premium and interests) to meet liabilities in case of banking trouble.

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