Home ›› 21 Feb 2022 ›› Front
The cabinet meeting on Sunday approved the amendment of the Bank Deposit Insurance Act-2000, doubling the amount of compensation of depositors’ after renaming it as the ‘Deposit Safety Act, 2022’.
As per the current law, a depositor gets the highest Tk 1 lakh within 90 days if any scheduled bank or financial organisation goes into liquidation as compensation.
The amended law proposed to increase this compensation from 1 lakh to Tk 2 lakh, cabinet secretary Khandker Anwarul Islam told reporters after the cabinet meeting, presided over by prime Minister Sheikh Hasina.
In Bangladesh, deposit insurance was introduced in August, 1984, while the amount of insurance coverage was Tk 60,000 which was later extended to Tk 1 lakh.
Only banks were mentioned in the previous act, while in the proposed law, financial organisations have been newly included extending the limit for depositors of financial organisations.
Besides, the Deposit Insurance Trust Fund (DITF) of Bangladesh Bank, a specific fund for depreciated depositors will be named as the “Deposit Safety Trust Fund.”
The proposed act suggested that the Bangladesh Bank can primarily restrict receiving deposits by the banks and financial organisations if they fail to pay insurance premium for consecutive two times.
Moreover, the central bank will have the authority to shut or liquidate them if the same incident is repeated for the third time.
After the order of liquidation of banks and financial organisations, the Bangladesh Bank will have to pay insurance money or Tk 2 lakh to the depositors from the Deposit Safety Trust Fund.
Each depositor will get the same amount of repayments even if they had several accounts with the banks or financial organisations, the draft act stated.
Deposit Insurance Systems is an institutional initiative to protect depositors against the loss of their deposits in the event that a scheduled bank goes into liquidation.
All scheduled banks or commercial banks including the branches of foreign banks functioning in Bangladesh are insured by the Deposit Insurance Systems.
What does DITF insure, currently?
The fund insures all deposits, such as savings, fixed, current, and recurring. The Bangladesh Bank pays premiums against deposits as the controller organisation under the Bank Deposit Insurance Act, while the premium is determined on a half-yearly basis, January-June and July-December sessions.
On the basis of the financial health/CAMELS rating of the banks, the premium rate is determined in three categories – 0.1 per cent for “problem” banks, 0.09 per cent for “early warning” banks, and 0.08 per cent for other banks.
The DITF is invested in the government treasury bond/bill and the income derived from such investment is also credited to the DITF account. At present, the fund is invested only in five-year and 10-year Bangladesh Government Treasury Bonds (BGTB). Banks pay premiums in June and December each year.
Experts demand increasing premiums of weak organisations
Experts opined that even the approved act has mentioned a low amount of safety money from the deposit insurance fund. They suggested increasing the amount of premiums of weak banks compared to strong ones.
Speaking to The Business Post about this Bangladesh Bank former governor Dr Salehuddin Ahmed said including financial organisations along with banks is the positive aspect of the new draft law as people also keep their money in financial organisations.
“But the amount of compensation money is extremely low. Foreign countries like in the US depreciated depositors get the highest $2,50,000. Comparatively, compensation money mentioned in the draft act is quite small,” he said.
Bangladesh can follow the other countries in case of amending the deposit safety act, he suggested, adding that, “The rate of deposit insurance premiums should be hiked. Especially, the rate of premiums should be higher for feeble banks compared to strong ones.”
BRAC Bank Chairman and Executive Director of Policy Research Institute of Bangladesh Ahsan H Mansur told The Business Post that only including financial organisations won’t be enough; regular monitoring should be operated and worthy banks should get low interest rate and other benefits.
“All these benefits can be imposed through premium CAMELS Rating or other surveys of Bangladesh Bank,” he suggested.
Tk 2 lakh for compensation money in the draft act is quite trivial; insurance benefits should be different for small and large depositors, he insisted.
Association of Bankers’, Bangladesh (ABB) Chairman and Eastern Bank Managing Director Ali Reza Ifte khan voiced the same and suggested a larger amount for insurance compensation.
Bangladesh Bank Executive Director and Representative Sirajul Islam said once only bank depositors use to get compensation from the fund but the new draft added financial organisation which reduced the risks of depositors of financial organisations.
