DCGC seeks Rs 5b govt loan

KATHMANDU, FEB 21 -

Deposit Insurance and Credit Guarantee Corporation (DCGC) has asked the government for a soft loan of Rs 5 billion to create a deposit guarantee fund.

DCGC has sought the money to increase public confidence in it as banks and financial institutions (BFIs) have been expressing doubts over its capacity to refund deposits if a BFI were to go under liquidation.

At present, DCGC’s paid-up capital stands at Rs 1 billion against its liability of Rs 194 billion, whereas BFIs have a lower liability against their capital base of Rs 2 billion.

“Our board last week decided to seek a soft loan of Rs 5 billion from the government to set up a deposit guarantee fund which will help to boost the confidence of the banking community and the public in our institution,” said a DCGC. “The government can arrange the funds through its own resources or foreign aid.”

Nepal Rastra Bank (NRB) has talked with the World Bank for its possible support to create such a fund. “However, there has been no conclusion in this regard,” said NRB Spokesperson Bhaskarmani Gnawali, who is also the chairman of DCGC.

According to DCGC officials, it has requested the government for its agreement in principle. “Other details including the interest rate are yet to be worked out,” said the official. With the government giving high priority to protecting the deposits of the general public with a number of BFIs getting into trouble of late, DCGC officials hope that the government will respond positively to its proposal.

The government’s relief plan announced immediately after its formation has mentioned increasing the limit of the deposits to be insured to Rs 500,000 from the current Rs 200,000. The government has already announced increasing DCGC’s capital base to Rs 2 billion in the next fiscal year. The government moved to establish a deposit insurance mechanism after Nepal Development Bank was liquidated in 2009 as a result of massive misappropriation of the bank’s funds by its promoters.

Subsequently, Samjhana Finance Company was liquidated. Another half a dozen development banks and finance companies have gotten into trouble with a number of them being declared crisis-ridden and others undergoing corrective action as part of NRB’s action.

According to DCGC, 194 BFIs including 31 commercial banks, 85 development banks, 74 finance companies and two micro finance institutions have got their deposits worth Rs 194 billion insured by DCGC. It is protecting the savings of 6.92 million depositors.

Source: Kantipur