September 4: Banks and financial institutions (BFIs) have been paying tens of millions of rupees every year for the insurance of their loans and deposits. In the last fiscal year alone, 72 banks and finance companies paid around Rs 1.61 billion to the Deposits and Credit Guarantee Fund for the risk management of their deposits and loans. Banks had paid Rs 1,058,000,000 for the protection of their deposits and Rs. 552,500,000 for the protection of their loans. The fund has been investing the collected fees in government bonds and term deposits of commercial banks.

Deposits of banks and finance companies haven’t declined by much despite the coronavirus pandemic. This is also the reason for the Deposits and Credit Guarantee Fund to be able to collect Rs 286.4 million for the protection of deposits of banks and finance companies in the first month of the current fiscal year. Chief Executive Officer of the Fund, Bishnu Babu Mishra, says that the Fund aims to raise the amount collected for the protection of deposits. According to him, the Fund has an estimated target of raising Rs 1,145,700,000 from the banks for the protection of their deposits in the current fiscal year 2077/78.

The Fund collects the fee every 3 months (that is 4 times a year) for the insurance of all kinds of deposits made by the depositors.

“As per the Deposit Protection Regulations 2075, the Fund charges an annual fee of 0.16 percent i.e. a monthly fee of 0.04 percent of the total deposits for the protecting the deposits,” he said.

The Fund determines the fee for the protection of loans in accordance to the regulations. The regulations have a provision for banks to pay 1 percent of the remaining principal and the interest amount to the Fund as the loan protection fee. CEO Mishra informed that the banks are not permitted to collect this money from the customers by charging them with a separate heading of “deposits and loan protection”.

According to the Fund, a sum of Rs 713 billion has been protected from the 26,664,000 depositors of different banks and finance companies till date. In addition, loan of around Rs billion taken by 899,000 debtors has been protected by the Fund.

The Fund invests the fees accumulated from the banks and finance companies in commercial banks. Even though the Fund is allowed to invest in government bonds, they have mostly been investing entirely in commercial banks. As per the Investment Regulation 2074, investment in only the term deposits or call deposits of banks that have been in profit for a consecutive 5 years is permitted. The single or multiple deposits made in a bank’s term deposit account should not exceed 20 percent of the bank’s paid-up capital or the Fund’s total investment. The Fund can not deposit an amount less than Rs 50,000,000 or more than Rs 1 billion , in the term account of a bank in one transaction.