New law to fully insure 93% of bank depositors

The government has approved amendments to the Deposit Protection Act, proposing an increase in the protection limit for bank deposits to Tk 2 lakh.

Around 93 percent of all bank accounts in the country hold deposits within this level, according to the finance ministry's proposal for the amendments, which drew on central bank data.

Besides, non-bank financial institutions (NBFIs) will also be brought under the deposit protection framework for the first time. But non-bank depositors will have to wait until July 2028 to receive legal coverage under the new framework.

The amendment, approved at an advisory council meeting on Thursday last week, introduces several new measures.

These include extending protection to NBFI depositors, setting up separate protection funds for banks and non-banks, ensuring faster payment of protected deposits, offering conditional financial assistance during bank mergers, and safe investments of the protection fund.

While bank customers already receive insured payouts within the timeframe set by existing resolution mechanisms, NBFI depositors will have to wait until mid-2028, said a senior finance ministry official.

NBFIs are currently not included in the Bank Deposit Insurance Act 2000 and have no deposit protection mechanism of their own.

Under the amended law, separate protection funds will be created for banks and financial institutions.

NBFIs will have to join the insurance fund by July 1 of 2028, and pay 0.5 percent of their paid-up capital into the deposit protection fund by July 31, according to the draft.

The contribution rate will vary according to each institution's risk profile.

Of the country's 35 NBFIs, 21 are in poor financial health, according to the Bangladesh Bank. Of them, nine are under consideration for liquidation.

All the 35 non-banks collectively hold deposits of nearly Tk 50,000 crore, up 4 percent year-on-year, spread across about 4.8 lakh accounts.

The average deposit per account stands at Tk 10.36 lakh, as per the central bank.

PAYOUT TIME CUT TO 17 DAYS

Once the new ordinance is enacted, depositors of the five shariah-based banks currently undergoing merger will be entitled to receive up to Tk 2 lakh.

The payout period for protected deposits will be reduced from 180 days to just 17 working days.

Under the existing Deposit Insurance Act, banks maintain a protection fund. It is financed by premiums collected from their deposits. From it, Tk 12,000 crore will be used to recapitalise the merger of the five shariah-based commercial lenders.

As of June this year, total deposits in the banking sector stood at about Tk 20 lakh crore, up 9 percent from a year earlier.

The number of bank accounts rose to 16.9 crore from 15.84 crore, with an average deposit per account of Tk 1.18 lakh.

BB TO OVERSEE NEW AUTHORITY

Once in force, the Deposit Insurance Ordinance will replace the Bank Deposit Insurance Act 2000, marking a shift towards aligning the country's deposit protection system with global standards.

The ordinance will set up a Deposit Protection Authority under the supervision of the Bangladesh Bank (BB).

The authority will oversee all deposit insurance activities and manage two separate funds, the Deposit Protection Fund for banks and the Deposit Protection Fund for NBFIs, to handle risks independently across banking and non-banking sectors.

Each fund will have its own board and director, with no transfer of resources between them. A dedicated department will be created within the central bank to administer the scheme.

Premium rates will be based on each institution's risk exposure. Banks and NBFIs will contribute annually through regular and special premiums.

The fund will also receive revenue from penalties and other sources, while investment earnings will be reinvested.

Banks and NBFIs will be required to submit lists of insured deposits to the authority. The central bank will notify depositors if a bank decides to close.

For individuals holding multiple accounts, all accounts will be treated collectively under a single depositor profile during payout.