No matter how much money is deposited in the bank, the depositor will get up to a maximum of Tk 2 lakh compensation if any bank or non-banking financial institution (NBFI) is liquidated.
This provision has been included in the Deposit Protection Bill presented before the Jatiya Sangsad by Finance Minister AHM Mustafa Kamal on June 11, to formulate Deposit Protection Act 2023 amending the existing Bank Deposit Insurance Act 2000.
According to the bill, even if a customer of any liquidated bank or financial institution has more than Tk 2 lakh in multiple accounts, he will get Tk 2 lakh. Even if a customer’s deposit is Tk 5 crore, the compensation will be the same Tk 2 lakh.
Stakeholders say that even if the Bank Deposit Insurance Act is amended, the question would remain whether it will benefit the clients at all.
Earlier, as per the Bank Deposit Insurance Act, the clients were entitled to the insurance benefit if a bank was liquidated. Now, after amending the law, the clients will get the Tk 2 lakh compensation in the name of deposit protection. In the amended law, the words “bank deposit insurance” shall be replaced by “deposit protection”.
If a bank or financial institution goes bankrupt or closes down or fails to return customer deposits, the issue of compensation arises.
According to the Deposit Protection Bill, Bangladesh Bank will create a fund called Deposit Protection Trust Fund. The fund money can be invested in any sector approved by the central bank. Money received from insured banks and financial institutions, income from investment of fund money, money received from liquidated banks and financial institutions, and income from any other source will be deposited to the fund.
According to the bill, the deposit protection fund cannot be spent for any purpose other than repayment of dues of depositors and the cost of maintenance of the fund. Besides, all scheduled banks and financial institutions have to be insured with the fund.
Premiums of insured institutions
Every insured bank and financial institution shall pay a premium to the fund on its insurable deposits every year at a rate determined by the Bangladesh Bank. These institutions will pay the premium from the cost sector.
If the insured banks and financial institutions fail to pay the premium, Bangladesh Bank will instruct to deduct the amount equal to the premium from the institution’s account in the central bank and deposit it into the fund. In case of failure to pay the premium, Bangladesh Bank may impose penalty interest as per the bank rate on the premium for the delayed period.
If an institution fails to pay the premium twice, Bangladesh Bank will direct the institution, through a gazette notification, to refrain from accepting deposits for a specified period with an opportunity for a hearing.
Fund liability
According to the Deposit Protection Bill, if an insured bank or financial institution is ordered to liquidate, every depositor shall be given Tk 2 lakh, or money equal to his deposited amount if the deposit is less than Tk 2 lakh, from the deposit protection trust fund. Even if the depositor has more than one account in the liquidated bank and financial institution, he will get Tk 2 lakh.
The liquidator of a liquidated bank and financial institution shall submit the list of depositors to the Bangladesh Bank within 90 days of assuming office. The liquidator will initiate to pay the compensation to the depositor from the trust fund within 90 days of submitting the list.
If the amount of money deposited in the fund is less than the amount to be paid, the government will borrow money from Bangladesh Bank at the bank rate and pay it to the fund, according to the proposed bill.
Stakeholders say that if the Deposit Protection Bill is passed, it will fail to protect medium and large depositors. As a result, not only the depositors will be affected, but the overall economy of the country also. As the amount of compensation is low, the customers will gradually withdraw their deposit considering the risk, reducing the flow of deposits to the banks. And if the deposits decrease, the banks’ ability to provide loans will also decrease. A decrease in loans provided by banks will ultimately decrease new investments, making an adverse effect on the economy.
