The Insurance Development and Regulatory Authority (IDRA) has instructed insurers to keep an equivalent ‍amount of paid-up capital as deposits at banks under the company's name without liability.

The regulator issued a notice to this effect today.

Banks will issue a certificate citing the deposit of the funds and the insurance company will submit the document to the IDRA.

Paid-up capital is the amount of money a company has been paid from shareholders in exchange for shares of its stock.

As per the Insurance Act, 2010, there is a provision to deposit the paid-up capital in scheduled banks without liability at the time of registration of insurance companies.

The notice comes after some insurance companies were found to be securing loans by creating liabilities against the fixed deposits created using paid-up capital, a clear violation of the law.

For example, Swadesh Islami Life Insurance Company took a loan of Tk 14.30 crore from NRBC Bank against a fixed deposit of Tk 13.05 crore, which was the company's paid-up capital, according to a letter of the insurance regulator.

The loan was not even shown in the balance sheet.

As a result, IDRA has relieved 12 of the 18 directors of Swadesh Islami Life, including its chairman, of their duties over allegations of embezzling fixed deposits and breaching the Insurance Act.

Various insurance companies claim that these loans are being taken to settle insurance claims, the IDRA notice said, adding that investment has to be free from any liabilities as per investment regulations.

In many cases, even after the funds are deposited with banks, the certificate is not sent to the authority.