Relief for Cooperative Savers: No Need to Wait for Liquidation, Proposal for Deposit Protection Like Banks
The Ministry of Finance has made public a draft amendment to the Deposit and Credit Guarantee Fund Act, proposing to bring cooperative institution depositors under the same deposit protection umbrella as banks. Under the new provision, savers of troubled cooperatives will receive advance payment equal to their protected deposits before the institution goes into liquidation.
Kathmandu – The government has initiated the process of reforming the legal framework to resolve the crisis in the cooperative sector and safeguard depositors' funds. The Ministry of Finance has prepared a draft of the 'Deposit and Credit Guarantee Fund (First Amendment) Act, 2083', proposing to expand the scope of the Deposit and Credit Guarantee Fund to include cooperative institutions as well.
In the draft bill published for the purpose of Section 6 (2) of the Legislation Act, 2081, stakeholders can submit written feedback and suggestions until October 3 (Ashwin 17) via email to [email protected] of the Ministry's Financial Sector Management and Institution Coordination Division.
Key New Proposals in the Bill
- Deposit Protection for Cooperative Institutions: Deposits of cooperative institutions licensed by the National Cooperative Regulatory Authority to conduct primary savings and credit operations will also be protected through the Fund. This facility, previously limited to banks and financial institutions, will now apply to cooperatives as well.
- Advance Payment in Troubled Conditions: The previous Act had a complex arrangement where depositors' funds would be returned only after the institution went into liquidation or was wound up. Under the new proposal, if a cooperative or bank is declared troubled and management is taken over, the Fund can provide advance payment equal to the protected deposit to savers before the institution goes into liquidation.
- Establishment of Separate Protection Funds: Under the Fund, separate funds will be arranged for the banking sector and for the cooperative sector (Cooperative Deposit Protection Fund and Cooperative Credit Protection Fund).
- Risk-Based Protection Premium: Protection premiums may be determined at different rates based on the risk assessment of cooperative and financial institutions.
- Operations and Capital Increase: A proposal has been made to increase the Fund's capital to Rs 10 billion. Additionally, there will be information exchange and regulatory coordination between the Fund and the National Cooperative Regulatory Authority.
If the new provisions are passed by Parliament and implemented as law, the deposits of ordinary citizens who have saved in cooperatives will be protected. Even if an institution becomes troubled, small savers will directly benefit as they will receive advance payment without waiting for a long time.
The Ministry of Finance believes that the new legal provisions will help restore public confidence in the cooperative and banking systems, thereby supporting capital formation and financial access.
The new proposal opens the way for advance payment to savers of troubled cooperatives, providing high priority and guarantee for savings protection. Additionally, the system of information exchange, notification of regulatory actions, and early warning about potential financial risks between the National Cooperative Regulatory Authority and the Deposit Protection Fund under Section 53(a) will support controlling irregularities and promoting good governance in the cooperative sector.
According to the report of the 'Parliamentary Special Investigation Committee on Misuse of Savings in Cooperative Institutions' formed after widespread irregularities and fraud in Nepal's cooperative sector, as well as records of government agencies, approximately Rs 65 billion to Rs 87 billion of ordinary people's savings are at risk or have been lost in troubled and crisis-ridden cooperatives.