Published in accordance with Section 6 (2) of the Legislation Act, 2081, the draft has been forwarded to the Financial Sector Management and Corporation Coordination Division. Stakeholders have been given a 10-day window from the notice's publication to submit their feedback via email at fsmd@mof.gov.np.
Key Proposed Amendments
The newly proposed legislation introduces structural changes aimed at fortifying financial security across both commercial banking and cooperative sectors:
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Inclusion of Cooperatives: The bill amends the preamble and key sections of the main act to bring savings and loan cooperatives licensed by the National Cooperative Regulatory Authority (NCRA) under the protection of the fund alongside traditional banks and financial institutions (BFIs).
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Advance Payment Mechanism: Moving away from the cumbersome rule that required depositors to wait until full liquidation, Section 30(a) introduces provisions for immediate payouts. If a BFI is declared troubled and managed by the Nepal Rastra Bank, or if a cooperative is deemed problematic and managed by the Ministry of Cooperatives, the Fund will provide equivalent advance payments for immediate savings withdrawal upon official directives.
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Four-Way Fund Restructuring (Firewalling): To ensure systematic oversight, the fund will be divided into four distinct, autonomous accounts: the Bank & Financial Deposit Guarantee Fund, Bank & Financial Credit Guarantee Fund, Co-operative Deposit Protection Fund, and Co-operative Credit Guarantee Fund. Financial liabilities will remain strictly segregated between these accounts.
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Contributions and Risk-Based Premiums: BFIs will be mandated to contribute 0.5 percent of their paid-up capital, while cooperatives must contribute 1 percent of their total share capital as an initial fee. Furthermore, annual security fees will be adjusted based on the risk profile of individual institutions.
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Capital and Operational Limits: The capital of the fund is established at Rs 10 billion. In case of cash shortages, the fund is authorized to borrow from the government at a rate matching 90-day treasury bills. Administrative expenses will be strictly capped at 20 percent of the income generated from annual security fees.
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Regulatory Coordination and Governance: Clause 51(a) establishes direct channels for information sharing and prior risk alerts between the Fund and the NCRA. Additionally, the Chief Executive Officer's tenure is set at four years, with provisions for removal based on a three-member investigation committee report in cases of inefficiency or breach of performance agreements.
Financial and Legal Outlook
The Ministry of Finance estimates that the amendment could initially release up to Rs 2 billion in additional cash liquidity. Officials have noted that the framework carries no long-term financial burden on the fund, as advanced funds are to be reimbursed following the successful revival or liquidation of troubled entities.
The legislation is expected to secure the hard-earned savings of small depositors, curb systemic risks within the cooperative sector, and restore public confidence in the broader financial architecture.
