A move is underway to replace the Bank Deposit Insurance Act 2000 with a new law that would safeguard the interests of depositors of both banks and financial institutions (FIs).
The existing act protects the interests of only bank depositors, leaving out the people who have deposits in FIs.
The Bangladesh Bank (BB) has drafted the new law, styled ‘The Deposit Protection Act 2014’, and sent it to the Bank and Financial Institutions Division (BFID) for necessary actions.
Khagesh Chandra Debnath, General Manager (GM) of the Deposit Insurance Department of BB, told the FE: "We have prepared a draft on a new law to bring FIs' depositors under the legal framework as the existing act only covers bank depositors."
An official at the Bank and Financial Institutions Division (BFID) of the ministry of finance (MoF) said, "Depositors of FIs are not protected enough. No other law of the land ensures their protection."
Although the BB initially wanted to amend the bank deposit insurance act, later it decided to make a fresh law in its 351st board meeting, the official told the FE, preferring anonymity.
Officials said the central bank had already sent the draft law to the BFID for next course of action.
Apart from covering depositors of FIs, there are no major changes made to the existing law through the one now in the process of making.
Like the existing law, the draft has also proposed a provision for creating a `deposit protection trust fund' under the central bank, from where affected depositors - both with banks and FIs -- will get a maximum compensation amounting to Tk 0.1 million.  Â
All the banks and FIs will contribute a certain amount of money to the fund annually and the fund will be regulated by a board of trustees under the central bank, the draft law reveals.
According to a provision of the proposed law, the BB will have to pay depositors from the deposit-protection trust fund within 180 days after the winding up of any bank or FI. If the trust-fund sees any shortage of funds in payment of compensations to the depositors, then the government is to meet the shortfall through borrowing from the central bank.
The amount of compensation paid to depositors will be adjusted after the settlement of final pay by liquidator.
BB officials noted that banks and FIs often face various risks in their financial operations, including with deposit and lending.
According to the central bank, the special features of the proposed Deposit Protection Act are protection of small depositors, enhancement of public confidence, stability of the financial system, increase in savings and encouraging economic growth and enhancing more propitious bank services.
Experts see the BB move as a positive one. They say since the activities of the financial institutions are widening day by day, there is a need of protecting the interests of their depositors.
 "It is a good move. It will help BB protect depositors' interests both in banks and NBFS," former BB governor Dr Saleh Uddin Ahmed told the FE.
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