Depositors' trust is the cornerstone of any financial institution, whether a bank or a non-bank entity. Individuals entrust their hard-earned savings to these institutions with the belief that their money will remain safe and accessible whenever needed. This fundamental trust factor is the engine that keeps banking operations running. However, history is replete with examples of financial crises, fraud and mismanagement that have jeopardised depositors' interests, underscoring the need for a foolproof protection mechanism. To this end, adoption of the 'Deposit Protection Bill 2026' in parliament on Friday last by doubling the deposit insurance coverage from Tk 100,000 to Tk 200,000 per depositor is a step in the right direction. The new law replaces the existing 'Bank Deposit Insurance Act, 2000' and, for the first time, bring non-bank financial institutions (NBFIs) under its insurance coverage. However, questions arise about the adequacy of the protection limit and whether it is sufficient to protect the savings of medium and large depositors.
Under the new law, in the event of the liquidation of a bank or NBFI, each depositor will be guaranteed a maximum payment of Tk 200,000. But what about depositors whose savings exceed this limit? The bill states that they may file claims for the remaining balance with the liquidator of the failed institution. It, however, falls short of clarifying the extent of the liquidator's obligation to compensate depositors, or the manner in which the regulatory authorities would intervene to facilitate such payments from the institution's remaining assets. If the law in question does not address the full gamut of depositor protection and merely stipulates an insurance ceiling, it is misleading to call it "Deposit Protection Act". The title of the previous law, the Bank Deposit Insurance Act, appears more appropriate.
The authorities, therefore, must clarify the full extent of depositor protection measures under the new law, as well as under the Banking Companies Act. In particular, it should be made explicit how claims beyond the insurance ceiling will be settled through liquidation processes, and what role regulatory bodies and the central bank will play in safeguarding remaining depositor funds. A transparent and comprehensive framework is essential to avoid ambiguity and ensure that depositors fully understand the level of protection available to them under the law. Otherwise, if depositors come to believe that Tk 200,000 is the maximum compensation they would receive in the event of a bank or NBFI liquidation, it is likely to trigger alarm and erode confidence. Such apprehension may prompt many to withdraw funds exceeding the insured limit, leading to a gradual decline in deposits, which, in turn, would constrain banks' lending capacity and set off a ripple effect across the broader economy.
Although no local bank has been officially liquidated in Bangladesh to date, the banking sector has been bled dry due to systematic looting and corruption during the tenure of the deposed authoritarian regime. A task force formed during the interim government found at least 10 banks as "technically bankrupt". The struggling banks were kept barely afloat through repeated injection of public funds, which is both wasteful and unsustainable in the long run. The state of over a dozen NBFIs is even worse, though their crisis have often been overshadowed by the broader banking sector crisis. In recent years, frustrated depositors have repeatedly taken to the streets demanding the return of their savings. The Deposit Protection law therefore comes at a critical juncture, when the authorities will be required to determine the fate of struggling financial institutions and safeguard depositors in the process.
