Bailout Ceiling

Jan 04, 2010 (LBO) – Sri Lanka’s Central Bank said a new mandatory deposit insurance scheme to be introduced this year will cover up to 100,000 rupees per depositor.

Coverage would increase as the deposit insurance fund grows, governor Nivard Cabraal said in a statement on its financial sector policies for 2010.

The deposit insurance is to be introduced to stabilise the country’s financial sector and restore public confidence in the financial services industry, he said.

Last year saw the collapse of finance companies in the unlisted Ceylinco group as well as other unregistered finance companies that duped investors with the promise of high interest rates.

The fund will also include a liquidity support scheme, which can be used to bail out a struggling bank or finance company with the aid of loans.

The deposit insurance fund is to be set up this year, Cabraal said. Banking laws are to be amended where applicable to implement the proposed changes.

Sri Lanka currently operates a voluntary deposit insurance scheme introduced in 1987 which is rarely used.

The deposit insurance is to go hand-in-hand with other regulatory measures such a