The Bangladesh Bank (BB) has drafted a new Deposit Protection Ordinance, proposing a maximum compensation of Tk 2 lakh per depositor if a bank undergoes liquidation. This cap will be reviewed every three years to ensure its relevance reportedly.
The draft ordinance, which is now open for public feedback, outlines the formation of a Deposit Protection Authority within the central bank. This authority will oversee a dedicated Deposit Protection Fund, which will be financed through premiums collected from financial institutions. Depositors with funds exceeding the protection limit will have to claim the excess amount directly from the liquidator.
To safeguard secured deposits, the draft mandates that payouts be processed within seven days. Additionally, any earnings generated by the fund will be exempt from taxation. The ordinance also gives the central bank the authority to impose penalties on financial institutions that fail to pay their premiums on time.
Previously, Bangladesh Bank Governor Ahsan H Mansur indicated that the new ordinance aims to strengthen depositor protection. It is set to replace the Bank Deposit Insurance Act-2000, which currently provides a maximum payout of Tk 1 lakh.
The government will be responsible for setting up a deposit protection system, which will be executed under the Bangladesh Bank’s supervision. The Deposit Protection Authority will function independently, with its responsibilities distinct from the central bank’s regular roles in regulation, supervision, and resolution.
To facilitate this, the central bank will establish a dedicated Deposit Protection Division within its organizational framework.
A seven-member board of directors, chaired by the Bangladesh Bank governor, will oversee the deposit protection system. This board will determine the maximum coverage limit at least once every three years and will regulate policies, investment strategies, and premium structures based on risk assessments. Additionally, it will allocate resources to support bank resolutions.
As per the ordinance, Bangladesh Bank will create a Deposit Protection Fund, which will operate through a separate account. The fund will be built from multiple sources, including:
- Initial and annual risk-based premiums collected from banks
- Special premiums imposed on financial institutions
- Penalties collected from banks failing to meet payment deadlines
- Profits from fund investments
- Adjusted funds from liquidated banks
- Other designated financial contributions
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The primary function of this fund is to secure deposit payouts if a bank is liquidated. However, it may also provide financial support for bank resolution efforts.
In cases where the fund faces a shortfall, Bangladesh Bank will have the authority to collect additional premiums from financial institutions, seek financial assistance from the government or external sources, or secure government-backed loans.
The draft ordinance specifies that the Deposit Protection Fund will be exempt from taxation under existing tax laws, including the Income Tax Act, 2023, and the Business Profits Act, 1947. This means no income tax, surtax, or business profit tax will apply to its earnings.
Furthermore, if any member institution fails to pay its prescribed premium within the designated timeframe, the Bangladesh Bank will have the authority to deduct the outstanding amount directly from the institution’s current account and transfer it to the Deposit Protection Fund.
Banks that fail to meet their premium obligations on time may also face additional financial penalties, with an interest rate applied based on Bangladesh Government Treasury Bonds or Treasury Bills, whichever is higher.
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