If Banks Go Bankrupt: Govt mulling Tk 2 lakh coverage for depositors

If Banks Go Bankrupt: Govt mulling Tk 2 lakh coverage for depositors

AKM Zamir Uddin | February 25, 2020

The finance ministry mulls providing a single depositor a maximum of Tk 2 lakh within six months of a bank’s closure.

Currently, a depositor is supposed to get maximum Tk 1 lakh under the deposit coverage.

The ministry is considering the move amid criticism from different quarters as it initially did not widen the ceiling of insuring the deposits in the draft Deposit Protection Act, 2020, which will replace the existing Bank Deposit Insurance Act, 2000.

As per the draft act, a depositor will get back Tk 2 lakh within six months of the liquidation of a bank despite the fact that the person deposited more than the insured amount.

The ministry arranged a meeting with officials of Bangladesh Bank and other banks on Sunday and the meeting decided to increase the ceiling, said ministry and central bank officials who took part in it.

The rest of the deposits, which is not insured, will be paid back by selling the assets of the liquidated bank as per the Banking Companies Act 1991, they said.

The ministry may upload the revised draft act on its website within a day or two, one of its officials said.

But this initiative would not boost depositors’ confidence in the banking sector given its vulnerable situation, said Ahsan H Mansur, executive director of the Policy Research Institute, while speaking to this correspondent on the matter.

“Increasing the insured ceiling for deposits is not a solution. The government and the central bank should take measures to improve corporate governance in the banking sector,” he said.

By increasing the ceiling, there is no scope of giving protection to majority of the deposits, he added.

Currently, banks have to pay premium at the rate ranging from 0.08 to 0.10 percent on their outstanding amount of deposits to insure deposits.

The volume of Deposit Insurance Trust Fund (DITF) reached Tk 7,430 crore in December 2018, up 16.03 percent from a year ago.

The total accounts and deposits in the banking sector stood at 10.28 crore and Tk 11,59,288 crore respectively as of September last year.

Ninety percent of the total accountholders with maximum balance of Tk 1 lakh are insured under the deposit safety net, a Bangladesh Bank official said.

The ratio of accounts will increase to 95-96 percent when the government will double the ceiling of the insured deposit amount, he said.

Mansur said that a good number of accounts that hold deposits up to Tk 1 lakh were not active.

The clients, who have deposited higher amount of funds, were now facing a worrisome situation because of the “existing haphazard situation” in the banking sector.

The central bank should increase the insurance premium for banks to protect depositors, said Salehuddin Ahmed, a former governor of the BB.

The government should consider the premium rate followed by the neighbouring countries and developed ones before fixing the ceiling, he added.

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