The corporation, which has started insuring deposits of up to Rs 200,000 parked at all banks and financial institutions, is currently guided by a regulation.[break]
“To provide additional legal back-up to the task of guaranteeing deposits of individuals that we are undertaking, we need an Act. This will also institutionalize the work of guaranteeing deposit that we are doing,” a high-ranking official of the corporation told Republica.
Although the need for the Act has long been felt, the corporation´s wish may not get fulfilled anytime soon due to absence of a legislative body. “We know the political situation is not supportive in this regard, but we don´t think the situation will remain the same forever,” the official said.
The corporation is currently putting its entire focus on deposit insurance - from its traditional business of insuring livestock and small business loans - as Nepal Rastra Bank has currently made it mandatory for all banks and financial institutions to insure deposits of up to Rs 200,000 belonging to individuals.
Following the issuance of the instruction, the corporation has already insured public deposits of over close to Rs 200 billion so far.
Earlier this year, the central bank announced its plan to raise the cap on deposit insurance to Rs 300,000 by the end of this fiscal year. This means the corporation will be exposed to more risk and it needs to create adequate cushion to absorb shocks in case it has to dole out compensations due to failure of banks and financial institutions.
“In this regard, we are planning to raise the paid-up capital of the corporation to Rs 2 billion within mid-July 2016,” the official said.
Earlier, the corporation, which currently has a paid-up capital of Rs 1 billion, had also sought a soft loan of Rs 5 billion from the World Bank to enhance its shock-absorbing capacity.
The request was made after various sectors started expressing doubts about the corporation´s ability to settle claims in case of sudden rise in number of troubled financial institutions.
“The plan is still being pursued and hopefully we will get the amount in the days to come,” the official said.
As the corporation plans to strengthen itself financially, it is also seeking to expand its network by opening branch offices in other parts of the country so that regional banks can have easy access to the corporation´s services.
“We also wish to build the capacity of human resources as we are now converting into a full-fledged deposit insurance company with a very large portfolio,” the official said.
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