ISLAMABAD: The Deposit Protection Corporation (DPC) has been set up through promulgation of the Deposit Protection Corporation Act to provide protection to small depositors of banks operating in Pakistan
An official said that the State Bank of Pakistan (SBP) has informed the Senate Finance Committee in a write-up that deposit protection mechanism is important tool to foster confidence among depositors and robustness of Pakistan’s banking sector. And by offering a safety net to depositors and mitigating potential crises, the deposit protection mechanism plays an important role.
The DPC was established through the promulgation of the Deposit Protection Corporation Act, 2016 subsequently, DPC advised a Deposit Protection Mechanism to the member banks in year 2018 both for the conventional and Islamic banking institutions. Key features of it included that all scheduled banks operating in Pakistan are required to be members of the DPC. This ensures that deposits in these banks come under the umbrella of the deposit protection mechanism.
In addition, deposit balances of all depositors present in their accounts are covered except for those depositors that are mentioned under Section 8 of the DPC Act. As per law, deposits like government and public sector, preferential interest bearing and related parties of banks, etc., are not protected under the deposit protection mechanism. As per the policy set by the DPC, there is a predefined coverage limit up to which deposits of each eligible depositor are protected on a bank-wise basis. The coverage amount at present is Rs500,000 per depositor per bank. The said limit fully covers 94 per cent of the depositors.
This limit was enhanced in the year 2021 from the previous coverage limit of Rs250,000 based on the evolving economic conditions and to optimise the coverage level. In case of bank failure, as declared by the SBP, DPC would compensate depositors up to the coverage limit.
In order to segregate Islamic Funds from Conventional Funds, the DPC has created two separate pools of funds Islamic Banking (called Deposit Protection Waqf) and Conventional Banking Fund.
The deposit protection fund is financed by the annual contribution from number of banks that is payable to DPC and the present rate of premium is 0.16 per cent of the eligible deposits of the respective bank on an annual basis.
Copyright Business Recorder, 2023