The Financial Institutions Division of the Ministry of Finance has drafted a new law, titled "Deposit Protection Act 2020", by doubling insurance benefits for depositors of banks and financial institutions that have faced liquidation.
Such depositors will be paid a maximum of Tk2 lakh from the fund created under this law.
At present, under the Bank Deposit Insurance Act 2000, depositors will get a maximum of Tk1 lakh in case of a bank's liquidation, but there is no such provision to provide protection to depositors of financial institutions.
No Bangladeshi bank has yet been liquidated. But there have been changes in name and ownership of banks caused by crises.
In July last year, the financial institution People's Leasing and Financial Services Limited faced liquidation. Its depositors have not yet received any money as deposits of financial institutions are not covered by such insurance.
This is why financial institutions are being brought under the new law, according to officials.
The Financial Institutions Division has published the draft law online and has asked stakeholders to share their opinions on it.
Former deputy governor of the Bangladesh Bank Khondokar Ibrahim Khaled told The Business Standard it is a good initiative to bring financial institutions under the new law in addition to banks.
He described the decision to give depositors Tk2 lakh as logical.
A large segment of small depositors will get back their full deposits because of this move, he said.
"The central bank will return money to depositors from the premium received from banks and financial institutions. Although there is no precedent of a bank facing liquidation in Bangladesh, some have been unable to return deposits because of extreme financial crises on different occasions. The government can consider whether it can return money to depositors of such crisis-ridden banks from the fund," Khaled explained.
According to the Scheduled Bank Statistics (January-March 2020) published by the central bank, there are 110,536,581 deposit accounts in banks. Of them, 103,744,533 accounts have deposits of a maximum of Tk2 lakh.
An additional secretary to the Financial Institutions Division told The Business Standard on condition of anonymity the deposit protection act is being made by annulling the bank deposit insurance law.
He said all scheduled banks and financial institutions will be brought under the new law, and this will ensure the security of depositors of both types of institutions.
"Eighty percent of depositors of banks and financial institutions have deposits of Tk2 lakh or approximately that amount. So, under the new act, it will be possible to return the deposits of 80 percent of depositors in case of the liquidation of a bank or financial institution.
"Those who have deposits of over Tk2 lakh will have their remaining money returned from sales of the assets of liquidated banks and financial institutions through appointment of receivers," the official added.
In the fund under the existing law, insured banks are required to deposit a premium of Tk0.07 percent per annum on their deposits. The new law states that the Bangladesh Bank will set the premium from time to time.
At the same time, banks and financial institutions will face penalty interest at the bank rate if they fail to pay the premium on time. The Bangladesh Bank will prevent the banks and financial institutions from accepting deposits that fail to pay the premium twice in a row.
The law also says if a bank or financial institution fails to pay a premium more than twice, the board of trustees will advise the Bangladesh Bank on its liquidation.