Deposit and Credit Guarantee Corporation brings deposit guarantee scheme

Deposit and Credit Guarantee Corporation (DCGC) has increased its paid-up capital and is planning to start a deposit guarantee scheme for the first time in the country of 'small depositors'. DCGC has been providing guarantee to credit earlier. It begins deposit guarantee from the current fiscal year.

"To guarantee the deposits of small depositors up to Rs 200,000 of all the financial institutions, we need a huge capital base," said Bhaskar Mani Gyawali, chairman of the DCGC here today. "However, we have started to guarantee the deposits of upto Rs 200,000 of Class-D financial institutions from July 17."

There is around Rs 2 billion in deposits from small depositors that is below Rs 200,000 in the Calss-D micro-credit institutions, according to the Nepal Rastra Bank (NRB) figures.

"In the beginning, we will have no problem as with increased paid-up capital of Rs 210 million, it will be enough for the deposit guarantee of below Rs 200,000 deposits of Class-D financial institions," Gyawali said adding DCGC is in talks with the government and Nepal Bankers' Association (NBA) to increase the paid-up capital to Rs 2 billion.

"If the government provides us with a seed money of Rs 500 million or NBA comes to join with us as a shareholder, it will be easier for us to increase our paid-up capital to Rs 2 billion," he said adding that there is around Rs 80 billion including commercial banks, development banks, finance companies and micro-credit institutions that has to be guaranteed.

"We charge Rs 0.20 per Rs 100 as guarantee fee," said the chairman of the corporation that has prepared a Regulation for the credit guarantee of less than Rs 200,000 of financial institutions. The Regulation has come into effect from July 17.

According to the Regulation, in case of bankruptcy of a financial institution, a small depositor (natural person), who has a deposit up to Rs 200,000 will get the total deposit amount and interest within 90 days from the date the institution goes under liquidation.
The commercial banks can be share holders in DCGC according to the ratio of small deposits in their institutions, according to the Regulation.

In Nepali society, there is a wrong perception that banks do not go bankrupt.

"The central bank takes guarantee of all the deposits," Gyawali, who is also executive director in the central bank, said, "But without deposit guarantee it would be not possible."

After Nepal Development Bank was sent to liquidation by the central bank due to its bad-financial health, the small depositors were worried and the government has brought a deposit insurance scheme for the small depositors in the budget for the fiscal year 2009-10, but it could not be implemented.