Deposit Protection Fund has let down depositors and should be overhauled
What you need to know:
- It has done a very poor job of defending the interests of depositors in fallen banks.
- The DPF is ripe for a total overhaul.
As I followed the controversy surrounding the change of ownership of Integrity Centre and what it means to the plight of the depositors of the defunct Trust Bank Ltd, I dug up by old note books for the addresses of some of the depositors I knew when the bank collapsed in 1998.
I wanted to gauge their opinion and personal testimony about life under the Deposit Protection Fund (DPF) and how much of their money remained outstanding 17 years after the bank collapsed.
The first person I called was a Mombasa businessman, Mr Shashy Shah.
At the height of the Trust Bank turmoil and in the din of the depositor activism that followed, he was said to be among the largest depositors, with Sh350 million in those days. I was shocked to learn that he had died several years ago.
Nairobi architect T.S. Nandhra was a large depositor and prominent leader and was among those who were elected to represent depositors on the board of the bank during the period when the bank was under the so-called scheme of arrangement.
When I tried to reach him, I was informed that he had also passed away many years ago.
I used to know Mr Taj Jiwa as among the influential leaders of Trust Bank depositors who had instituted several cases in the High Court in an attempt to bring the former owners of the bank — Ajay Shah, Praful Shah and Nitin Chandaria — to account for the misery they had subjected ordinary bank customers to.
I found out that he was among the people who did not live to see their money returned.
STOLE BILLIONS
Methinks the Deposit Protection Fund has done a very poor job of defending the interests of depositors in fallen banks.
You put your hard-earned savings in a bank believing that, as an institution under constant supervision by the Central Bank, and which must be given a licence every year by the regulator to operator, it must be safe.
Integrity House was until recently under the control of the Deposit Protection Fund on behalf of the depositors of Trust Bank Ltd. Yet as a depositor, you wake up one morning to read in newspapers that the property has changed hands.
The Deposit Protection Fund says it could not hold the title because the debtor had paid it. But it will not go on record to divulge how much it recovered from discharging the property.
The depositors also read in newspapers that Mr Ajay Shah, who stole billions from them, had 50 per cent shareholding in the company that owned Integrity Centre.
It all disappears in thin air, and all that the Deposit Protection Fund is prepared to do is to explain it away in legalese.
You begin to appreciate the sense of injustice and discrimination which these depositors feel, having to endure untold suffering, even as they watch former directors and shareholders of Trust Bank driving around in convoys of big cars and surrounded by menacing-looking bodyguards.
DOUBLE JEOPARDY
According to the DPF’s own figures, 1,800 depositors have yet to be paid. The depositors have been made to suffer double jeopardy. In the initial stages of the bank’s problems, they were told to convert part of their deposits into shares, believing that the bank would be revived under the so-called scheme of arrangement.
In all fairness, the money that the depositors were conned into converting into deposits should have been returned to the individuals in cash.
There is a strong case indeed for reforming the Deposit Protection Fund. In the first place, it must be made to operate with more transparency and disclosure, especially to depositors of fallen banks.
Today, all it does is present periodic reports to the Office of the Registrar of Companies. For 17 years, the depositors of Trust Bank have been in total darkness. Depositors need regular updates. They need hope.
In reforming the DPF, the priority should be removing the responsibility of liquidating fallen banks from its docket.
When you allow a deposit insurance institution to dabble in these two roles, you put it in a position of conflict of interest.
We have a deposit insurance entity that conducts business as if it were the official receiver. The DPF is ripe for a total overhaul.
