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Friday, October 01, 2010 - 5.05 GMT |
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CB implements deposit insurance scheme |
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The Central Bank has implemented a mandatory deposit insurance scheme under the provisions of the Monetary Law Act with effect from today (1st October).
It will be implemented as the Sri Lanka Deposit Insurance Scheme (SLDIS). The initial capital of the Scheme of Rs. 1.1 billion (approximately) will be provided by the Central Bank.
The members of the Scheme will comprise all licensed banks and registered finance companies. All deposits excluding deposits of member banks and finance companies, Government of Sri Lanka, shareholders, directors, key management personnel, other related parties, deposits held as collateral against any accommodation granted and deposits falling within the meaning of abandoned property in terms of the Banking Act and dormant accounts in terms of the Finance Companies Act, will be considered as eligible deposits under the scheme.
According to the SLDIS, in the event the licence or registration of a member institution is suspended or cancelled by the Monetary Board, depositors will be compensated up to a maximum of Rs. 200,000 per depositor. While member banks and finance companies will participate in this scheme on a mandatory basis from 1st October 2010, depositors will be entitled to benefits after 1st January 2012.
The premium to be levied on eligible deposits will range between 0.10% and 0.15% per annum and will be required to be paid by member institutions on a monthly/quarterly basis.
Such premia will be credited to a Deposit Insurance Fund which will be operated and managed by the Monetary Board of the Central Bank. However, such Deposit Insurance Fund will be distinctly separate from the Central Bank, and its liability will be limited to the extent of the Fund balance.
With the implementation of the Scheme, the Central Bank is of the view that public confidence will be enhanced; interests of small depositors with low financial literacy will be safeguarded; savings among small scale depositors will be encouraged; unauthorized deposit taking activities will be discouraged; and the commitment of the Government in the case of failure of a financial institution will be reduced.
The Central Bank, with the intention of mitigating any possible threat to the banking industry and thereby the financial system in the face of the potential downturn in the domestic and global economic activities, required licensed banks to maintain a general loan loss provision of 1% against performing loans and loans in the special mention category as a proactive prudential measure.
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