To protect small depositors and reinforce trust in the banking system, the government has mandated compulsory insurance for individual deposits up to Rs 500,000. This policy has led to the insurance of deposits worth Rs 1.51 trillion through the Deposit and Credit Guarantee Fund (DCGF).
However, despite the significant rise in insured deposits, concerns are mounting over the Fund’s limited capacity to manage the associated risk. The capital and risk reserves of the DCGF—responsible for covering these insured deposits—have not increased in step with its growing liabilities. This imbalance has raised serious questions about its ability to compensate depositors in the event of a major institutional failure, according to the Office of the Auditor General (OAG).
In its report for the last fiscal year 2023/24, the OAG flagged a potential risk: “the Fund’s existing reserves would be insufficient to cover the collapse of a single large commercial bank. The report highlighted that, as of this year, Rs 1.43 trillion in deposits across 55 banks and financial institutions are insured—averaging Rs 26 billion per institution. Yet, the Fund’s risk reserve for deposits stands at just Rs 9.82 billion. If a Class A bank were to fail, the Fund would face a shortfall of approximately Rs 16.17 billion.”
The OAG recommends that the Fund conduct an actuarial valuation and substantially increase its capital base to align with its expanding obligations.
However, DCGF CEO Ramesh Ghimire asserted that the Fund, as a government-owned entity, should not be viewed as incapable of fulfilling its obligations. “While the capital may appear insufficient relative to its liabilities, the Fund operates under sovereign backing. It should not be assumed that it cannot meet its commitments,” Ghimire said.
He emphasized that Nepal’s financial sector is well-regulated and the likelihood of large-scale defaults is low. According to Nepal Rastra Bank data, as of mid-January 2025, funds worth Rs 1.513 trillion—across 47.7 million accounts—are insured.
The DCGF currently operates with a share capital of Rs 12.64 billion, of which 90% is owned by the government and the remaining 10% by Nepal Rastra Bank. Banks and financial institutions are required to pay an annual premium of 0.16% on the amount of insured deposits. Insurance coverage is mandatory for all personal deposits up to Rs 500,000.
Ghimire acknowledged that the Fund does not have reinsurance coverage. He noted that while reinsurance would offer additional risk protection, the cost would be unaffordably high. “Our premiums are low which makes reinsurance difficult to sustain,” said Ghimire, adding that DCGF was set to carry out an actuarial assessment to better evaluate the Fund’s risk exposure and financial health.
Nepal introduced the deposit insurance scheme about a decade ago in the wake of the Nepal Development Bank crisis, aiming to protect small depositors and bolster confidence in the financial system. The scheme ensures that in cases of liquidation—when a bank or financial institution fails and its assets are insufficient to repay depositors—the Fund will step in to cover the shortfall.
Under this provision, the Fund previously disbursed approximately Rs 110 million to depositors of Himalayan Finance, following its collapse. As of the last fiscal year, the Fund had also insured loans worth Rs 297.5 billion, benefiting 11.55 million borrowers. These loans include those to the agriculture and livestock sectors, small and medium enterprises, microfinance institutions, and low-income or disadvantaged groups.
