Non-bank depositors to get insurance coverage

Bangladesh Bank has prepared a draft law bringing amendments to an existing one to ensure insurance coverage for depositors of non-bank financial institutions (NBFIs) to protect their interests.

Currently, only bank depositors are eligible for insurance based on The Bank Deposit Insurance Act, 2000. The amendments have been proposed on it.

The draft Deposit Protection Act, 2017 will be sent to the finance ministry once stakeholders' opinions are taken, said a senior BB executive.

The central bank took the initiative as deposits in leasing companies are growing fast due to their high interest rates, he said.

Deposits in the country's 29 NBFIs stood at Tk 46,797 crore as of December last year while their loan portfolio amounted to Tk 61,456 crore, central bank data shows.

According to the draft act, depositors will get insurance coverage for up to Tk 1 lakh if the respective NBFI goes for liquidation. Therefore, those having deposits of Tk 1 lakh or less will get back the whole amount while those having more will just get Tk 1 lakh. It goes the same for bank depositors.

The existing law protects 88 percent of bank depositors. The rest 12 percent are big depositors having over Tk 1 lakh, according to the central bank.

The proposed act will improve depositors' confidence, said AKM Shahidul Haque, managing director of Islamic Finance and Investment.

Giving the example of Farmers Bank, he said depositors were withdrawing money apprehending that the bank would collapse. When depositors become aware of the protection act, they will not rush to withdraw money, he added.

The deposit protection act will reduce the withdrawal risk in the NBFIs, he said.

Bangladesh Bank has been urging the government since 2014 to amend the act to bring NBFIs under the insurance coverage, said another senior executive of the central bank.

He said the approval was being delayed as the finance ministry was trying to include mobile financial service (MFS) accounts in the protection act.

Bangladesh Bank did not agree with the ministry, citing that the MFS providers are not allowed to take deposits and so logically they had no depositor to protect, he added.

The central bank finally drafted the law without including the MFS accounts and posted it on its website seeking opinions of stakeholders, he said.