Mandatory deposit insurance scheme

To enhance depositor confidence :

Charumini DE SILVA

The mandatory deposit insurance scheme will be implemented from today under the provisions of the Monetary Law Act. It is being implemented as the Sri Lanka Deposit Insurance Scheme (SLDIS) with an initial capital of Rs 1.1 billion.

The members of the scheme comprise all licensed banks and registered finance companies.

Central Bank Governor Ajith Nivard Cabraal said under the SLDIS in the event the licenses or registration of a member institution is suspended or cancelled by the Monetary Board then depositors will be compensated with the implementation of SLDIS upto a maximum of Rs 200,000 per depositor at present.

However, with the gradual growth of the fund, the deposit limit will also increase. Speaking at the press conference held at Central Bank yesterday.

Cabraal said the implementation of the scheme will enhance depositor’s confidence and be a self-corrective mechanism where companies would not have to take it as a burden. It will also safeguard depositors of the low financial literacy, discourage unauthorized deposit takings and reduce Government commitment like in the failure of financial institutions.

“Although the premium is entitled from today the liability will be allowed after January 1, 2012. The main reason for this gap is to allow the fund to grow substantially by 2012 and we hope that the fund will grow up to Rs one to two billion during this period. The deposits of the fund will be re-invested in Government papers,” Governor Cabraal said. The premium levied on eligible deposits will range between 0.10 percent and 0.15 percent per annum. Member institutions have to pay the premium on a monthly or quarterly basis.

These premiums will be credited to the Deposit Insurance Fund (DIF) operated and managed by the Monetary Board of the Central Bank.

The DIF is separate from the Central Bank and its liability is limited to level of fund balance and the DIF will be audited by the Auditor General.

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[Reduction in general provision]

The Central Bank has decided to reduce the general provision on performing loans and advances and credit facilities in the special mention category from the existing one percent to 0.5 percent by December 31, 2011, Central Bank Governor Ajith Nivard Cabraal said.

This will allow banks to reduce the current general provision requirement at a rate of 0.1 percent per quarter, over each of the five quarters commencing with the quarter ending on December 31. The reduction of general provision from one percent to 0.5 percent will enable banks to benefit a sum of Rs eight billion. The total outstanding loans are between Rs 1.6 trillion to Rs 1.8 trillion at present.

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[Reserves top US $ 7.1 billion]

Sri Lanka’s total foreign reserves are close to exceed US $ 7.1 billion within the next few days which is currently US $ 6.1 billion. This is mainly due to sovereign bond issue of US $ one billion, increased export proceeds and tranches of the International Monetary Fund (IMF) Stand-By-Agreement.