SBP’s Subsidiary Deposit Protection Corporation Starts Operations

Deposit Protection Corporation, the subsidiary of State Bank of Pakistan, has commenced its business and operation in the country with the aim to protect small depositors for ensuring financial stability and maintaining public trust in the banking industry of the country.

Pakistan government had given a go-ahead to State Bank of Pakistan (SBP) to set up its subsidiary Deposit Protection Corporation (DPC) in 2016. The central bank released an order of parliament duly approved by members of National Assembly and Senate with the order of President, stating that Deposit Protection Corporation (DPC) has been ordered to be established as per Deposit Protection Act, 2016.

According to the Act, the authorized share capital of the corporation shall be Rs 1 billion initially.

The corporation may, subject to the prior approval of the State Bank, make regulations, not inconsistent with the provisions of this Act and the rules made to provide for all matters.

If the corporation fails to comply with any direction of the State Bank under sub-section (3) within the specified period, the State Bank may make, amend or rescind any regulation.

The State Bank shall issue a notification to the effect that normal operations of a member have been closed or suspended as a result of its insolvency or any judicial or regulatory action.

Role of Deposit Protection Corporation

The objective of the corporation is to compensate the depositors for losses incurred or deposit loss in the event of failure of a member. Hence, all banks scheduled under Section 37 (2) of the State Bank of Pakistan Act, 1956, unless, exempted or excluded by the board, shall be members of the corporation and liable to pay the prescribed premium.

The subsidiary shall pay the liabilities of the failed institution to its depositors up to the amount protected, in the cases where the State Bank issued a notification under subsection (1) (3). It shall owe no interest on protected amounts whereas it shall pay the protected amount of deposits in cash, or through a transfer of deposit to any banking company or in any other way as determined by its board.

The corporation shall guarantee the full payment of funds held on a depositor’s accounts with a member regardless of the number and size of the deposits up to an amount determined by the fund from time to time.

SBP’s subsidiary Deposit Protection Corporation (DPC) will be situated in Karachi. The Deputy Governor of the State Bank shall be the chairman of the board whereas the Managing Director shall be appointed by the board.