Banks ask for reduction in premium rate
KATHMANDU, SEP 29 -
Although the central bank has made it mandatory for commercial banks to insure deposits, only one bank so far has done so.
Banks’ reluctance, according to bankers, is due to high premium charged by the Deposit and Credit Guarantee Corporation (DCGC). They say the 0.2 percent premium will further increase their cost of fund.
Now, the banks have requested the DCGC and Nepal Rastra Bank (NRB) to reconsider the premium rate. DCGC has fixed rate at 20 paisa per Rs 100 annually. As per the Deposit insurance Bylaw 2010, the premium will not be refunded to member banks and financial institutions (BFIs). BFIs failing to maintain their capital adequacy ratio will have to pay an additional 10 paisa premium on half yearly basis.
NRB on September 21 had issued a directive, asking BFIs to insure individual deposits up to Rs 500,000. According to NRB, the volume of deposit for mandatory insurance coverage was raised to safeguard depositors’ interest.
NIC Bank CEO Sashin Joshi said the provision will increase banks’ operating cost by Rs 10 to Rs 50 million. “After carrying out ample of research on financial markets abroad, we found that the cost of deposit insurance there ranges from 0.02 to 0.1 percent,” said Joshi. “Compared to that, we are charged much higher.”
However, DCGC Chariman and NRB Spokesperson Bhaskar Mani Gnawali said the premium rate was decided after undergoing extensive homework. “We also held discussions with all three associations of BFIs before determining the rate,” said Gnawali. “Therefore, all the BFIs should concentrate on complying with the directive as soon as possible.”
Bankers suggest that the premium should have been set either according to the international practice or on the basis of probability of loss. “We asked DCGC about its rational behind determining the current rate and requested to reconsider it, but we were not answered logically,” said Joshi. “We also requested to reduce the premium rate to 0.05 to 0.1 percent or allow us to pass the cost to our depositors before setting criteria on the basis of probability of loss, but to no avail.”
Nepal Bankers’ Association Vice President Rajan Singh Bhandari said the deposit insurance should be made optional and banks should be allowed to transfer the premium to depositors.
Anil Shah, CEO of Mega Bank, the only commercial bank to have its deposits up to Rs 200,000 insured, said the current rate of premium is higher and will create problems for BFIs already facing high cost of fund. “At present, we cannot pass on the increased cost to our borrowers, so it will further squeeze our net spread,” said Shah, adding that since the amount to be insured has gone up by more then two folds, DCGC will enjoy increased revenue and that it should decrease the premium.
NRB officials, however say banks are only thinking about increasing their profits rather than being concerned about the safety of depositors’ hard earned money. “They should act responsibly and comply with the NRB directives,” said Gnawali.
Source: Kantipur
Although the central bank has made it mandatory for commercial banks to insure deposits, only one bank so far has done so.
Banks’ reluctance, according to bankers, is due to high premium charged by the Deposit and Credit Guarantee Corporation (DCGC). They say the 0.2 percent premium will further increase their cost of fund.
Now, the banks have requested the DCGC and Nepal Rastra Bank (NRB) to reconsider the premium rate. DCGC has fixed rate at 20 paisa per Rs 100 annually. As per the Deposit insurance Bylaw 2010, the premium will not be refunded to member banks and financial institutions (BFIs). BFIs failing to maintain their capital adequacy ratio will have to pay an additional 10 paisa premium on half yearly basis.
NRB on September 21 had issued a directive, asking BFIs to insure individual deposits up to Rs 500,000. According to NRB, the volume of deposit for mandatory insurance coverage was raised to safeguard depositors’ interest.
NIC Bank CEO Sashin Joshi said the provision will increase banks’ operating cost by Rs 10 to Rs 50 million. “After carrying out ample of research on financial markets abroad, we found that the cost of deposit insurance there ranges from 0.02 to 0.1 percent,” said Joshi. “Compared to that, we are charged much higher.”
However, DCGC Chariman and NRB Spokesperson Bhaskar Mani Gnawali said the premium rate was decided after undergoing extensive homework. “We also held discussions with all three associations of BFIs before determining the rate,” said Gnawali. “Therefore, all the BFIs should concentrate on complying with the directive as soon as possible.”
Bankers suggest that the premium should have been set either according to the international practice or on the basis of probability of loss. “We asked DCGC about its rational behind determining the current rate and requested to reconsider it, but we were not answered logically,” said Joshi. “We also requested to reduce the premium rate to 0.05 to 0.1 percent or allow us to pass the cost to our depositors before setting criteria on the basis of probability of loss, but to no avail.”
Nepal Bankers’ Association Vice President Rajan Singh Bhandari said the deposit insurance should be made optional and banks should be allowed to transfer the premium to depositors.
Anil Shah, CEO of Mega Bank, the only commercial bank to have its deposits up to Rs 200,000 insured, said the current rate of premium is higher and will create problems for BFIs already facing high cost of fund. “At present, we cannot pass on the increased cost to our borrowers, so it will further squeeze our net spread,” said Shah, adding that since the amount to be insured has gone up by more then two folds, DCGC will enjoy increased revenue and that it should decrease the premium.
NRB officials, however say banks are only thinking about increasing their profits rather than being concerned about the safety of depositors’ hard earned money. “They should act responsibly and comply with the NRB directives,” said Gnawali.
Source: Kantipur
