The request was made after various sectors started expressing doubts over the state-owned corporation´s ability to settle claims in case of sudden rise in number of troubled financial institutions, as the public enterprise does not even have a capital base of Rs 1 billion.[break]
Although the DCGC still does not know when the amount will arrive, a reliable government source told Republica: “We expect it to come soon as a senior WB official has given consent to our proposition.”
According to the official, the credit amount - on which an interest of 1 percent is expected to be charged - will be parked in a separate fund (Deposit Guarantee Fund) which has already been formed under the DCGC.
The DCGC is currently building the fund´s reserve by channeling 50 percent of its net income to the fund.
“Once the fund gets additional amount, the DCGC can dip into this reserve while settling claims,” the source added.
The DCGC is currently in need of money as the central bank has given it the monopoly to insure deposits of up to Rs 200,000 belonging to all depositors in commercial banks, development banks and finance companies. This generally means the DCGC will have to compensate victims, who have parked up to Rs 200,000 in these institutions, in case banks and financial institution go bankrupt.
So far, the DCGC has insured deposits of almost Rs 70 billion belonging to more than 1.8 million depositors - majority of who have accounts in development banks and finance companies.
A large chunk of DCGC´s clients are development banks and finance companies as the government has made it compulsory for these financial institutions to insulate deposits of up to Rs 200,000.
The government has also asked commercial banks to do the same but since it is not binding, so far only five commercial banks - Mega, Citizens, Civil, Machhapuchchhre, and Standard Chartered - have volunteered to do so. Others are saying the premium of 20 paisa that the DCGC charges on insurance of every Rs 100 is too high.
Despite this criticism, the government is recently mounting pressure on these commercial banks to follow the path of the five banks. This means all commercial banks will one day be compelled to insure deposits.
“This is why we are asking for the soft loan from the WB, as commercial banks usually insure huge amount of deposits than other financial institutions, forcing the corporation to bear greater risk,” the source said.
Along with this, the government, since last year, has also taken steps toward replenishing the corporation´s capital by releasing a fund of Rs 400 million every year till 2015 so as to raise the capital of the DCGC to Rs 2 billion.
Under this provision, the government last year released only Rs 250 million citing budget constraint and another Rs 500 million this year to compensate the shortfall of last year. This has raised the paid-up capital of the corporation to Rs 980 million.
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