By Sandun A. Jayasekera
The Central Bank is to introduce a novel Deposit Insurance Scheme (DIS) to protect 13 million small scale depositors with deposit of Rs. 200,000 or less at licensed and registered commercial banks and registered financial institutions with effect from October 1st, Central Bank Governor Ajith Nivard Cabraal said.
Speaking to Daily Mirror today, Mr. Cabraal said some 23 commercial banks, 09 specialized banks and 36 finance companies will come under the DIS and deposits under Rs. 200,000 will be insured to ensure the repayment of deposits in an event of the bank or the finance company collapsing.
“We repay only for savings deposited at registered or licensed finance companies and banks as they are considered legitimately established financial institutions. Sri Lanka did not have a scheme of this nature up to now and this we expect will boost private savings among the public. Sri Lanka expects to raise the rate of deposits to a minimum 30% of the GDP from current 18% in the next six years in order to realize our development goals,” Mr. Cabraal emphasized.
The DSI expects to protect the interest of small depositors from the failure of financial institutions and thereby to contribute to the financial system stability. DIS is one of the safety net instruments for both crisis prevention and crisis management. It promotes financial system stability which is a core objective of the Central bank, he stressed.
“The novel scheme will enhance public confidence and safeguard the interests of small depositors with low financial literacy. It will promote market discipline by encouraging large depositors to monitor the performance of financial institutions,” he said.
The DIS has been established under the provisions of the Monetary Law Act and member institutions are all licensed banks and registered finance companies.
All deposits excluding deposits of members, Government of Sri Lanka, shareholders, directors and key management personnel, and deposits held as collateral against any accommodation granted will be covered.
Up to Rs. 200,000 per depositor will be paid in the event the license of the institution is suspended or cancelled by the Monetary Board.
Deposit Insurance Fund will be operated and managed by the Monetary Board of the Central Bank, Mr. Cabraal noted.
Mr. Cabraal added that the DIS will encourage savings among small scale depositors and prevent the mushrooming of bogus finance companies and financiers like Sakvithi.