Deposit Protection Fund to be operational by March

KARACHI: The State Bank of Pakistan (SBP) is likely to set up Deposit Protection Fund (DPF) by March to put in place a modern deposit insurance mechanism in support of financial stability and resilience in the banking industry.

The Ministry of Finance officials, on the behalf of the government, assured the IMF staff members in the meeting of ninth review that the central bank has begun the preparatory work to make the DPF operational by March.

According to the IMF report, the SBP, which has finalised the draft Deposit Protection Fund (DPF) Act, is on track for enactment by the end of February.

The DPF Act has been finalised in line with best international practices (as specified in the TMU), and was introduced in the parliament in November 2015.

DPF, as a subsidiary of SBP, would be having whole management control thereof. The objective of the fund is to compensate the depositors for losses incurred by them to the extent of protected deposits in the event of failure of a member.

All banks scheduled under Section 37 (2) of the State Bank of Pakistan Act, 1956, unless, exempted or excluded by the
board, shall compulsorily be members of the fund and liable to pay the prescribed premium.

The authorised share capital of the fund shall be Rs 1 billion or such other amount, as SBP may, from time to time, determine by order in writing and shall be divided into shares of Rs 1 million each.

According to the DPF draft, the fund shall pay liabilities of the failed institution to its depositors up to the amount protected without any interest.

The fund shall guarantee full payment of the funds held on a depositor’s accounts with a member regardless of the number and size of the deposits up to an amount determined by the fund from time to time.

The fund shall pay the protected amount of deposits in cash, or through transfer of deposit to any banking company or in any other way as determined by its board.

For foreign currency denominated deposits, the depositor shall be paid the rupee equivalent of the protected amount at the exchange rate of SBP on the day of the notification under subsection (1).

The board shall regularly notify the liquidator or the assignee in bankruptcy about the amount paid by the fund to any depositor(s). Depositors’ claims in excess of the protected amount received from the fund shall be settled from the member’s property, pursuant to applicable law.

The SBP deputy governor shall be the chairman of the board, which would appoint its managing director.

 

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