Is the credit protection fund prepared to guarantee the cooperative's amount?

The Deposit and Credit Protection Fund ought to be tasked with overseeing deposit insurance (protection) in cooperatives, according to the report provided by the committee established to look into the embezzlement of cooperative savings money.

Should this proposal be carried out, the fund will function as a deposit and credit protection fund for cooperative organizations as well as bank financial institutions. This proposal has been put up with the understanding that, even if it is an established and seasoned organization, it is not required to create a new one.

Only the loans made by banks, financial institutions, and microfinance organizations are now protected by the fund. The committee's recommendation and the government's determination to put it into effect have created a scenario where the loans and savings of around 30,000 cooperatives need to be insured. However, this structure won't be put into effect until after structural and legal changes.

Currently, Nepal Rastra Bank regulates all banks and financial entities that offer loan protection. There is practically little chance of these organizations failing because of the stringent regulations. The fund does not require the payment or claim of any of the premiums it has collected because of sufficient liquidity management, mortgage protection, and other regulatory measures. Securing the loan carries some risk, but the reward is substantial. The fund settled claims totaling Rs 15 crore and received Rs 57 crore in premiums up until March of the previous fiscal year. Because of this, the fund's balance has grown, and as of the end of March, it exceeded 27 billion. Currently, the fund is turning a profit of around 4 billion rupees every year.

In this manner, the fund that has over 75% profit on loans and no claims on deposits will be prepared to insure cooperative deposits with ease. Ramesh Ghimire, the fund's chief executive officer (CEO), remarks, "We are happy to insure cooperative deposits as well; it broadens our purview." Without a doubt, we won't deposit if the government issues directives and takes the necessary legal actions.

But who will keep the cooperatives safe in the manner that they currently are? CEO Ghimire claims that conducting business pertaining to deposit protection will only be feasible under certain conditions, such as the formation of a new authority and the implementation of stringent regulation and oversight. Under the current circumstances, however, this is not the case.

Currently, a requirement exists for loan protection up to 5 lakh rupees in the names of natural persons from deposits held in financial institutions and banks. This means that in the event that there isn't a bank or other financial institution for any reason, the fund must hold the same amount as the money placed by any individual by opening a bank account. Each regulated bank and financial institution must contribute an annual premium to the fund in order to do this.  A membership fee of 0.16 percent of the deposit protection amount per year and 0.05 percent of the paid-up capital at the outset are agreed upon. According to Achyut Pant, the fund's deputy manager, the security fee, also known as the premium, is collected quarterly at a rate of 0.04 percent because it must be paid based on the average deposits made over the course of three months.

The greatest amount that can be deposited in the name of a natural person is five lakhs; any amount below that is considered the minimum amount, and the premium is collected based on the comparable amount.

Similarly, there is a clause protecting loans for export, education, agriculture, microfinance, small and medium-sized businesses, and the needy. This includes provisions for loan protection for microfinance and disadvantaged loans up to 10 lakhs if unsecured and 20 lakhs if collateral is provided, 3 lakhs for victims of earthquakes, 10–10 lakhs for retired athletes' and those affected by armed conflict's business operations, and up to 15 lakhs for microfinance loans to women-owned enterprises. For these loans, a premium fee equal to 0.8 percent of the loan amount has been established.

Security deposits up to one crore rupees are required for Small and Medium Enterprises (SME) loans, while up to three crore rupees are optional. These loans include an additional fee of 0.6 percent. In addition, plans for the protection of cattle have been prepared. This includes a price range of 20,000 to 150,000 rupees each animal, as part of an agreement to safeguard the animal. A fixed premium price of five percent of the money assured is charged for this. Of this, the respective farmers must bear 20% (one percent of the security amount) and 80 percent (four percent of the security amount).

According to fund officials, distinct funds can be managed when setting up deposit and credit protection funds for cooperatives. In the event that the fund is unable to meet its duties, the government will step in. As of right now, the fund does not offer any reinsurance for any security it provides. By creating loan arrangements and fund deposits with government guarantee, it has been setting up both kinds of security.