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Cabinet approves draft law for protection of deposits at financial institutions

| Updated: February 21, 2022 11:05:28

Cabinet approves draft law for protection of deposits at financial institutions

The government of Bangladesh has approved a revised draft of a law with an aim to protect deposits of non-bank financial institutions (NBFIs).

As per the draft law, the NBFIs will have to provide clients with compensation up to Tk 200,000 if they go bust and fail to provide security for their deposits.

Until now, there was no law to provide safety to depositors at financial institutions, reports bdnews24.com.

After the cabinet meeting on Sunday, Cabinet Secretary Khandaker Anwarul Islam spoke about a revised draft of a law pertaining to protection of deposits at banks and other financial institutions.

 “The money deposited only in banks were secure until now. But deposits in different leasing companies or financial institutions were not,” Anwarul said.

 “So we’ve revised the existing law and enacted the Bank Deposit Protection Act 2022. Previously, it was Bank Deposit Insurance Act, now it will be a protection law. It was only applicable for banks before, not for the financial companies. ‘Banks’ have been replaced by ‘banks and financial companies’ [in the revised law].”

The cabinet secretary added the revised law prevents anyone from carrying out financial activities like savings by depositing a specific amount of money in the central bank without approval.

 “Anyone doing national financial transactions now will have to be registered with Bangladesh Bank, regardless of under whose name it is being done. A specific amount of the total paid-up capital has to remain in the central bank deposit as per the rule defined by it.”

 “In that case, if a leasing or finance company shuts down or something similar happens, the customers will receive up to Tk 200,000 from the deposit.”

The Bangladesh Bank has set a cash reserve ratio or CRR of 4 percent for the listed banks. A fresh CRR has to be set now for the finance companies outside banks.

 “Different leasing companies and financial institutions outside banks that carry out trade deposits will fall under the law. They will have to deposit a safety amount at Bangladesh Bank from the deposits they receive.”

Anwarul said banks used to seek approval from Bangladesh Bank for opening while depositing some money at the central bank. The leasing companies had no such requisites. So there was no law relating to deposit safety in companies like Jubok.

Usually, local financial institutions offer higher benefits than banks, but most of these companies also go bankrupt due to operational and other issues.

 “I’d like to point out that the government is taking responsibility for only Tk 200,000 of the deposit made to financial institutions other than banks in hope of higher profits if problems occur.

 “The rest can be recovered only if it's possible to retrieve from the companies.”

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