Special Correspondent :
The fragile state of banks and non-bank financial institutions has brought back focus on deposit insurance scheme when insurance protection on deposits in Bangladesh is one of the lowest in the world.
Currently, a depositor is supposed to get maximum Tk 100,000 under the deposit insurance scheme if a bank runs broke. But many observe the coverage is inadequate in Bangladesh given the abysmal situation of the country’s banking sector, and it is very low compared to many countries in the world.
The deposit insurance scheme of India insures up to Rs 500,000 per deposit, Philippines insures up to 500,000 pesos ($9,500), Thailand insures close to 5 million bath ($160,000) and in China this insurance is for up to 500,000 yuan ($70,000) per depositor, according to respective central bank websites.
The US Federal Deposit Insurance Corporation (FDIC) raised the maximum deposit insurance limit from $100,000 to $250,000 following the unprecedented banking crisis in America that led to failure of big banks like Bear Stearns and Lehman Brothers in 2008.
“Insurance protection on deposits in Bangladesh is one of the lowest in the world. Even by Asian standard, the country is far behind in deposit insurance,” said Dr Salehuddin Ahmed, a former governor of the Bangladesh Bank (BB).
He said the depositors are increasingly worried about the safety of their deposits in banks due to the low level of coverage. “The coverage for term-deposits should be increased considering the fragile state of local banks,” he added.
Referring to recent move by India, Dr Salehuddin Ahmed said the government of the neighbouring country increased the limit of insurance cover to Rs 500,000 per deposit and the government of Bangladesh should follow the suit.
In Budget 2020, Indian Finance Minister Nirmala Sitharaman announced the hike in the wake of crisis at Mumbai-based PMC Bank.
“The increase in deposit insurance in Bangladesh is also overdue. This will certainly give a sense of security to depositors, especially senior citizens, who rely on their deposit interest for regular income,” said Dr Salehuddin Ahmed.
He also called upon the central bank to bring necessary amendments in the proposed ‘Deposit Protection Act, 2020’ so that depositors are covered adequately under the deposit insurance.
Officials said, deposit insurance ensures the depositors gets a certain amount before the bank pays other parties it woes money to during the liquidation process.
When contacted, BB’s chief spokesperson M Serajul Islam said under the existing law, if the central bank declare bankrupt to any bank, the depositors’ money will be paid from the ‘Deposit Insurance Trust Fund’ within a hundred and eighty days.
“Depositors’ money in banks and financial institutions will be more secure after implementation of proposed ‘Deposit Protection Act, 2020,” he claimed.
The BB spokesperson also said the proposed act raised the ceiling of deposit insurance amount to Tk 200,000. Whatever deposit a depositor has in one or more accounts, s/he will only get the amount after winding up a bank and non-bank financial institutions.
Moreover, M Serajul Islam said, in the Bank Company Act, there is a clear provision for repayment of all deposits from the assets of the bank in case a scheduled bank falls. “But the central bank never expect any bank run broke.”3
