A fund of Rs 500 million will be released to the DICGC by Wednesday, an official of the Finance Ministry told Republica on condition of anonymity. [break]
This will raise the capital base of the firm to Rs 980 million, offering it flexibility to dip into capital reserve in case problems of bankruptcy start affecting individual depositors of financial institutions.
The government had last year decided to release a fund of Rs 400 million to the DICGC every year till 2015 to raise the paid-up capital of the corporation to over Rs 2 billion. However, due to budget constraint, the state defaulted on its promise last year and released only Rs 250 million.
“The government is providing us more than the pledged amount this year to compensate the shortfall of last year,” Bhola Prasad Sharma Adhikari, general manager of the DICGC, told Republica on Monday.
The fund being extended by the government this year is expected to boost confidence of the firm in initiating the process of insulating deposits of individual depositors of commercial banks.
Recently, the central bank has made it mandatory for all banks and financial institutions to insure deposits of up to Rs 200,000 with the DICGC.
This scheme was launched to safeguard individual depositors as they started suffering the most from the fallout of weak financial institutions that were crippled by bad governance and exposure to chunk of bad loans.
So far, all development banks, finance companies and government-recognized microfinance institutions have complied with the central bank´s instruction and have insured deposits of around Rs 57 billion belonging to over 1.7 million individual depositors. These institutions have to pay a premium of 20 paisa on every Rs 100 insured by the DICGC.
Currently, the central bank is also coordinating with Nepal Bankers´ Association to persuade commercial banks for providing protection to the funds of individual depositors. Until now, only Mega Bank has complied with the central bank´s instruction and insured over Rs 800 million belonging to individual depositors.
DICGC will have to insulate additional deposits worth around Rs 100 billion once remaining 29 commercial banks approach it for insurance cover.
Because of the corporation´s low capital base, sources told Republica that many commercial banks are currently concerned about DICGC´s ability to absorb shock in case the firm has to distribute huge amount in compensation.
“But the addition of capital is expected to pump up the confidence of our critics,” Adhikari said.
Related story
Govt injects Rs 500m into DICGC
-1779842101.webp)
