All commercial and scheduled banks will have to deposit billions of Rupees into the Deposit Protection Corporation (DPC) in order to protect the amount of their account holders from any risk in future. According to new rules, every bank has to deposit an amount of Rs. 250,000 per depositor into the DPC, which has been set up as a subordinate of the State Bank of Pakistan. The guaranteed amount shall become payable to bank account holders / depositors, in case a member bank fails and has been notified as the same by the State Bank of Pakistan. The money of depositors and bank account holders will be guaranteed on the following types of bank accounts:-
• All types of current and saving accounts
• All types of branchless banking accounts
• Fixed term deposits/ accounts
• Call deposit receipts/ Security deposit receipts.
There are 34 commercial and scheduled banks that have become member banks of the Deposit Protection Corporation. The list of the banks can be viewed HERE. The introduction of deposit protection is a recent addition through the establishment of Deposit Protection Corporation, which will reinforce the bank resolution regime of SBP. The objective of DPC is to compensate the small and financially unsophisticated depositors to the extent of protected deposits in the unlikely event of a bank failure.
Besides a protected amount of Rs 250,000 per depositor per bank, commercial and scheduled banks are liable to pay aggregate premium to the DPC. Accordingly, the amount of annual premium payable to the Corporation by the member banks under Section 5(2) of the Act, shall be calculated by multiplying 0.16% (sixteen hundredths of one percent) with their respective eligible deposits. The member banks shall be required to report their eligible deposits, in their annual audited financial statements of each year, under the note on deposits.
Shariah Compliant Mechanism
A separate Shariah Compliant Deposit Protection mechanism for protected depositors of Islamic Banking Institutions as required under Section 7(3) of the Act, shall be provided by the Corporation.
However, protected deposits, guarantee amount, coverage methodology, reimbursement of protected deposits, premium amount, eligible deposits and payment of premium by member banks shall be the same as determined for conventional banks. The conventional banks carrying out Islamic banking operations through Islamic banking branches shall ensure that the premium contribution(s) for their Islamic and Conventional deposits should be segregated and should be sourced from respective operations.
The premium contribution for the protection of Shariah complaint deposits should under all circumstances be charged to their respective Shariah compliant banking operations. In this regard, the bank’s Shariah compliance and Shariah audit departments shall make necessary arrangements to ensure proper supervision.
The Islamic banking branches of conventional banks shall be required to disclose their eligible deposits in the annual audited financial statements of each year, under the disclosure on deposits of Islamic banking business.
Importance of Deposit Protection Scheme
Establishment of a formal deposit protection scheme will be beneficial for Pakistan as it will build up sizable funds, through premium payments from banks that can be used to provide immediate liquidity to small depositors in case of a bank failure. Such schemes will not only reduce burden on the exchequer but will also improve the financial stability in the system.
Financial Stability is one of the top priorities of SBP and its effective supervisory regime has ensured that depositors do not lose their money and that public confidence in the system remains strong. The implementation of deposit protection will further strengthen the overall regulatory architecture and safety of deposits.
DPC is a part of the stability of the financial systems, which is of paramount concern for policymakers around the world. Hence, DPC and its related mechanism have been put in place in line with international standard.