Deposit cover premium to increase marginally

Mumbai: The fivefold increase in deposit insurance will not have a significant impact on banks’ balance sheets. The RBI has increased the premium on bank deposits by only 20% to 12 paise from 10 paise for every Rs 100.

“The premium is something which we are considering. It will be increased from 10 paise to 12 paise per hundred rupees for the time being. So, the impact on the banks’ balance — it is not likely to be so much,” said RBI deputy governor B P Kanungo.

Earlier, analysts had estimated that a fivefold increase in the deposit insurance cover might add up to 25 basis points (100bps = 1 percentage point) of their aggregate deposits. Given that total bank deposits are Rs 131 lakh crore, the increase in premium for one year will boost the deposit insurance fund by Rs 2,620 crore.

Kanungo pointed out that the Deposit Insurance and Credit Guarantee Corporation (DICGC) pays out claims only at the time of liquidation. However, he added, there is also a scheme where the DICGC provides compensation under restructuring plans for reviving the bank. This is a big positive for stressed co-operative banks as it would be possible for the DICGC to fill in to make a takeover proposal viable. Responding to a query on Punjab and Maharashtra Co-operative (PMC) Bank, RBI governor Shaktikanta Das said that the administrator and the advisory committee are having greater clarity with regard to the financial position of the bank and are working on their next course of action.

The DICGC received total premium income of Rs 12,043 crore from banks in 2018-19. The deposit insurance fund amounted to Rs 93,750 crore in FY19. It insured deposits of Rs 33.70 lakh crore out of total deposits of Rs 120 lakh crore of 2,098 banks.

Source: The Times of India