High-Level Economic Advisory Reform Commission Suggests to Improve Deposit Insurance to Safeguard Banking Sector

Kathmandu — The High-Level Economic Advisory Reform Commission has recommended enhancing the effectiveness of Nepal’s deposit insurance mechanism to ensure long-term stability in the banking sector.

Currently, the Deposit and Credit Guarantee Fund, jointly operated by the Government of Nepal and Nepal Rastra Bank, insures individual bank deposits up to Rs 500,000. The government holds a 90 percent stake in the fund, while the central bank owns the remaining 10 percent. With an investment of Rs 10 billion, the fund has so far insured deposits totaling Rs 143 billion and credit amounting to Rs 258 billion, according to data from Ashad 2081.

However, the Commission has flagged key concerns regarding the fund’s operational efficiency. A significant portion of the insurance premiums collected is being deposited back into the banking system, raising questions about its ability to withstand potential banking crises. Additionally, the fund has not been reinsured—an essential step in risk mitigation—further limiting its capacity to respond effectively during financial distress.

Experts believe that without structural reforms and proper reinvestment strategies, the deposit insurance system may fall short of providing timely relief in the event of bank failures or liquidity shortages.

The Commission has called for urgent reforms, including the introduction of reinsurance mechanisms and clearer contingency planning, to strengthen public confidence and safeguard Nepal’s financial stability.