DCGC likely to get power to take over FIs

KATHMANDU, DEC 16 -

If things go as planned, the Deposit and Credit Guarantee Corporation (DCGC) will get the authority to take over troubled financial institutions (FIs) and liquidate them without going to court.

With the Nepal Rastra Bank (NRB) mulling emulating the US Federal Deposit Insurance Corporation’s (FDIC) model as part of the DCGC strengthening process, discussions are on to make such a provision under a separate Act governing the DCGC.

The NRB Act allows it to send troubled FIs to liquidation, but the court should decide on whether to liquidate certain FIs.

“Such a provision has been mulled so that the DCGC can make payment of claims immediately after the liquidation process of financial institutions concerned begins,” said Bhaskar Mani Gnawali, the NRB spokesperson. “We have also held discussions with international donor agencies such as the World Bank (WB) and the International Monetary Fund (IMF) which are helping in the capacity building of the DCGC.” He said they were positive on the NRB proposal.

The proposed Act will have to supercede the existing Company Act and Insolvency Act for the DCGC to get such an authority. If any financial institution having deposit insurance coverage from the FDIC is critically under-capitalised, the DCGC has the right to declare the FI concerned insolvent and take over the management.

The FDIC classifies FIs in five categories on the basis of their capital adequacy ratio. If the ratio is less than 2 percent, the FDIC categorises such an FI as critically under-capitalised and can take over the management.

An FI having a capital adequacy ratio of below 6 percent is categorised as significantly under-capitalised and they are warned. Those having a capital adequacy ratio of less than 8 percent is considered under-capitalised, those having above 8 percent are adequately capitalised and those having 10 percent or more are categorised as well capitalised.

“We are also discussing making a similar provision of takeover in case the FI concerned is critically under-capitalised and under-liquidated,” said Gnawali, who is also the chairman of the DCGC.

However, it all depends on whether the parliamenterains endorse the Act with such a provision. “It needs political willpower and consensus,” said Gnawali.

Under the current liquidation process, it takes a long time for depositors to get back their deposits because of the lengthy legal procedures of liquidation.

Source: Kantipur