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Bonanza for depositors

21 September 2010 08:27 am - 11     - {{hitsCtrl.values.hits}}

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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.

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  Comments - 11

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  • TP Tuesday, 21 September 2010 10:50 AM

    What would be the plight of those who haved saved with the registered finance companies. So far nothing has happened. Sad to say the Central Bank has lost its credibility with the masses.

    Wasantha Tuesday, 21 September 2010 11:14 AM

    Hope that there is a genuine motive behind this bonanza.

    victor Tuesday, 21 September 2010 12:07 PM

    Who's paying the premium? Is it the commercial bank or central bank or the poor customer?

    E.T. Tuesday, 21 September 2010 12:24 PM

    You bet!

    eddie Thursday, 23 September 2010 12:50 AM

    this is a very good move by the central bank. admittedly lowering inflation would have had the same effect but because our economic growth is largely funded by state led infrastructure spending, inflation will remain fairly high. so this is a good move.

    the cost will ultimately fall on the saver, and potentially the central bank should financial institutions collapse. however, the risk of such a collapse is highly unlikely given the current economic environment. the greater the volume of savings, the stronger our economic growth will be and this decreases the likelihood of financial collapses.
    good move, if it is coupled with greater regulation of the financial market.

    Rohan Wednesday, 22 September 2010 10:11 AM

    Very good question, Victor.

    TONY Tuesday, 21 September 2010 06:04 PM

    very true Dinesh. But what do. our people's memory lasts for only two weeks. And again they fall to the lies and beatifully arranged empty words of cabral

    citizen1 Wednesday, 22 September 2010 03:27 AM

    Here he goes again...rambling on about our thriving economy!

    Dinesh Tuesday, 21 September 2010 08:48 AM

    Bet this is also another gimmick like done before with the schemes like bonus interest for senior citizens and bonus interest for RFC account holders.

    malkanthi Tuesday, 21 September 2010 08:48 AM

    Well Central Bank has come out with novel idea to show the GDP growth!

    Defender Tuesday, 21 September 2010 09:56 AM

    This is a very good move to promote Savings in SL. I know most of people had money in their houses without depositing in banks during past couple of years. They had lost confidence with regard to financial institutions.
    With this move it will be a green light for them.
    However, CBSL should bring more powerful laws to nab illegal financial institutions & to speed up the proceedings of failed financial institutions recently.


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