BM Desk: The Bangladesh Bank (BB) has proposed a Deposit Protection Ordinance that stipulates a maximum compensation of Tk 2 lakh for each depositor in the event of a bank’s liquidation. This limit will be reassessed every three years.
The draft is currently available for public comment and outlines the creation of a Deposit Protection Authority within the central bank, which will manage a distinct fund sourced from premiums paid by financial institutions.
Depositors whose amounts exceed the protection limit will need to seek reimbursement for the excess through the liquidator. Additionally, the ordinance specifies a payout period of seven days for secured deposits and includes tax exemptions on the earnings of the fund. The central bank has the authority to impose penalties on institutions that fail to remit premiums punctually.
Previously, central bank Governor Ahsan H Mansur indicated the need for this ordinance to enhance depositor security. This new ordinance will replace the Bank Deposit Insurance Act of 2000, which currently allows a maximum payout of Tk 1 lakh.
As per the draft, the government will implement a deposit protection system, with the BB appointed as the Deposit Protection Authority. The draft emphasizes that the authority’s functions will be distinct and independent from the regular duties of the Bangladesh Bank, which include regulatory, supervisory, and resolution-related tasks.
To facilitate the effective execution of its powers and duties, the central bank will establish a distinct division within its organizational framework, referred to as the “Deposit Protection Division.” A board of directors, consisting of seven members with the central bank governor serving as the chairman, will make decisions regarding the deposit protection system. This board will review and set the maximum limit for protected deposits at least once every three years, while also overseeing regulations, by-laws, investment strategies, and risk-based premium rates. Additionally, it will allocate resources to assist in bank resolutions.
According to the ordinance, the central bank will create a deposit protection fund, which will be managed through a dedicated account. This fund will include initial, annual risk-based, and special premiums collected from banks; fines imposed on member institutions; earnings from investments; adjusted funds from liquidated banks; and other unconditional funds earmarked for disbursement. The primary purpose of the fund will be to cover secured deposits in the event of a bank’s closure, although it may also extend financial support for bank resolution efforts.
In the event of a fund shortfall, the Bangladesh Bank (BB) will possess the authority to impose special premiums on member institutions, request unconditional financial support from the government or other entities, or obtain loans from the government. Additionally, the central bank will create a distinct fund dedicated to depositors of non-bank financial institutions.
According to the proposed ordinance, irrespective of the Income Tax Act of 2023, the Business Profits Act of 1947, or any other prevailing tax regulations, no income tax, surtax, or business profits tax will be levied on the income, profits, or receipts of the Deposit Protection Fund.
Furthermore, should a member institution fail to remit the required premium within the designated timeframe, the BB will withdraw the necessary amount from the institution’s current account and transfer it to the appropriate account of the Deposit Protection Fund. The central bank may also impose penalties on late premiums, applying an interest rate that is the greater of the rates for Bangladesh Government Treasury Bonds or Treasury Bills.
