SRI LANKA TO START DEPOSIT INSURANCE SCHEME

Sri Lanka's Central Bank said it will introduce a deposit insurance scheme from October 1 that will help protect small depositors and reduce government liability if a financial institution collapses.

Central Bank Governor Nivard Cabraal said that under the scheme, depositors will be compensated up to a maximum of 200,000 rupees per depositor.

The initial capital of the Sri Lanka Deposit Insurance Scheme (SLDIS) of 1.1 billion rupees (US$9.8 million) will be provided by the Central Bank, he told a news conference.

While member banks and finance companies will participate in the scheme on a mandatory basis from October 1, 2010, depositors will be entitled to benefits after January 1, 2012.

The premium to be levied on eligible deposits will range between 0.10 per cent and 0.15 per cent a year to be paid by member institutions on a monthly or quarterly basis.

The premia will be credited to a Deposit Insurance Fund which will be operated and managed by the Monetary Board of the Central Bank.

The money will be re-invested in government securities, Cabraal said.

The Deposit Insurance Fund will be distinctly separate from the Central Bank and its liability will be limited to the extent of the fund balance, a bank statement said.

"Public confidence will be enhanced, interests of small depositors with low financial literacy will be safeguarded (and) savings among small scale depositors will be encouraged," it said.

Unauthorized deposit taking activities will be discouraged by the scheme and the commitment of the government in the case of failure of a financial institution will be reduced, it said.