DCGC for simplifying rules to compensate insured depositor
KATHMANDU, Aug 4: Deposit and Credit Guarantee Corporation (DCGC), which has been insuring deposits of up to Rs 200,000 parked in banks and financial institutions, is mulling over shortening the timeframe of compensating insured depositors in case commercial banks, development banks and finance companies have to be shut down for good.
Requesting a change in regulation, the corporation has proposed that insured depositors be reimbursed soon after the decision to liquidate banks and financial institutions is taken.
"We can recoup this amount later from the liquidator once the assets of the troubled institution are sold," a high-ranking official of the Ministry of Finance told Republica on condition of anonymity. "This will ensure insured depositors won´t have to wait for protracted amount of time to get the compensation amount."
To introduce the service, the DCGC has proposed creating a fund of Rs 500 million. "We have already asked for the budget from the government to establish the fund," the official said.
Since the launch of deposit guarantee scheme in 2010, DCGC has been lucky and has never had to reimburse depositors due to fallout of banks and financial institutions.
But even if it meets that fate, the existing legal provision allows it to extend compensation to insured depositors only after the process of liquidation of troubled banks and financial institutions is complete.
Since this process is lengthy and can take up to two years to complete, there is a growing feeling among DCGC high-ranking officials that depositors may not get relief immediately despite being covered by insurance.
One of the reasons why the DCGC has so far been nonchalant about shortening the process of compensating insured depositors is the belief that people who deposit up to Rs 200,000 in banks and financial institutions will get automatically rescued prior to the commencement of the liquidation process.
This is because the regulator regularly keeps tab of banks and financial institutions and often knows when a financial institution is going to land in trouble.
In such cases, the regulator usually asks the troubled institution to reimburse small depositors before the start of the liquidation process.
But the possibility of the regulator losing its sight cannot be ruled out. In addition, the possibility of a burst of bankruptcies, as in the case of the US following the fallout of Lehman Brothers in 2008, also cannot be ruled out.
"In such cases, insured depositors will have to wait until the liquidation process is complete," the official said, justifying the need to reimburse depositors in advance.