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Proposed Depositors\' Protection Act

More ambiguity than clarity haunts the draft

Published : Tuesday, 3 March, 2020 at 12:00 AM  Count : 268

Proposed Depositors' Protection ActThe proposed Deposit Protection Act 2020 to secure depositors' money sounds quite positive when a bank or non-bank financial institution (NBFIs) will become bankrupt. But many also speak skeptically if and how it will be able protect big deposits and sustain long crisis or confidence crisis.  
There is no doubt it is an important move at a time when the country's banking sector is turning highly chaotic and worsening day by day and at least 12 non-bank financial institutions (NBFIs) are in the red zone showing they may fail any time to endanger depositors' money. But question remains if the new law will work given the socio-political situation.   
The announcement that depositors will get Tk 100,000 within 90 days and now the latest  amendment says Tk 200,000 to be paid in 90 days is alright if any bank becomes bankrupt but how the rest of the money will be returned is not clear.
The proposal says assets of the concerned bank or NBFIs will be sold to create fund for repayment to victims. If it is the case, it may take even years in many cases given the country's lengthy legal system.
In another point the proposal said the remaining fund will be paid from 'Deposit Insurance Trust Fund' held with the central bank within 180 days. It is also not clear whether the central bank will make arrangement for repayment of the remaining fund whatever be the amount from insurance trust fund with which 92 percent accounts are claimed to have been insured.
Or the insurance trust fund will also wait for monetization of assets of bankrupt bank or NBFIs to start repayment of bigger amount above taka one or two lakhs from central bank's fund. The confusion must be cleared to prove that it is not just an eyewash and really wants to give protection to victims without letting them to wait indefinitely over months or years.
Former deputy governor of Bangladesh Bank Ibrahim Khaled said bank accounts for up to Tk 100,000 have been insured with the central bank. The question is what the bigger account holders above Tk 100,000 having not been covered by insurance can do or how they would be able to recover their lost fund.
One may take the case of International Leasing and Financial Services (ILFS) -- a NBFI declared  bankrupt last year by the central bank and depositors reportedly have lost over Tk 3500 crore. Alone its managing director PK Halder and his family members have stolen Tk 1500 crore and moved out of the country.
The central bank has recently appointed Ibrahim Khaled one of ILFS' independent directors and chairman to recover its assets and arrange payment to depositors. But he resigned the post very recently as he found that the ILFS had been damaged by the perpetrators beyond repair.
Khaled told The Daily Observer recently that it was a tough job and he is initially trying to resolve the issue outside court. He said court matters are lengthy and if it does not bring credible results he would take legal help to freeze the assets and take step to sell them to recover the lost money.
Cent percent recovery is not possible in such cases thus spelling doubt whether the proposed law will be enough to recover assets of bankrupt banks and NBFIs to create fund for repayment to victims.
Even recovery of fund embezzled by Hallmark Group from Sonali Bank and by such other big business houses can't be recovered so far. Analysts say here the problem is complex lengthy legal process in one hand and political leverage of influential people to delay or deny refund of fund or allow selling their assets stands on the other.
It is too early to assess the proposed law to be able to effectively ally the growing fear of insecurity of depositors in the banking sector.







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