Insurance premium for deposits to be slashed soon

KATHMANDU:

Financial institutions might have to pay less for deposit guarantee premium soon.

“We have been informed that the central bank and other authorities are mulling over reducing the deposit guarantee premium by almost half before the end of the first half of the current fiscal year,” informed an official at Deposit and Credit Guarantee Corporation (DCGC).

At present, financial institutions are annually paying Rs 0.2 as guarantee fee for every Rs 100 worth of eligible deposits held at financial institutions. “The guarantee fee might be lowered to 0.1 per cent, but it will not get any lower,” informed the official.

So far by mid-August, DCGC has insured deposits worth Rs 232 billion in 175 financial institutions. Regulation requires commercial banks, development banks, finance companies, and deposit collecting microfinance institutions to get their small deposits of up to Rs 200,000 insured by DCGC.

Deposit insurance covers a maximum deposit of up to Rs 200,000 saved in 9.03 million individual accounts. There is about Rs 674 billion as deposits of individual depositors that is covered by the insurance. Due to deposit insurance, these depositors will not lose their deposits of up to the insured amount even if the financial institution where the deposit has been made collapses.

Nepal Rastra Bank (NRB) made deposit insurance mandatory since August 2011. Bankers have been demanding lowered premium rate but expansion in deposit insurance coverage amount so that more deposits can be protected.

Last year’s monetary policy had announced about increasing deposit insurance amount to Rs 300,000 but it did not get implemented in the year.

However, the issues regarding enhancing institutional capacity and revision of premium rate are under discussion at the high level financial sector coordination committee in order to make the deposit insurance programme more effective, says the monetary policy document for current fiscal year.

Source: THT