Regular commercial banks account for over 93% of premium payments to the Deposit Insurance and Credit Guarantee Corporation (DICGC) in FY21, according to the company’s annual report for the year. It’s even like the majority of bailouts by DICGC were for cooperative banks.
Commercial banks, including local banks (LAB) and regional rural banks (RRB), paid a total premium of Rs 16,341 crore in 2020-2021, while cooperative banks paid Rs 1,176 crore. However, deposit coverage per share is highest in the case of RRBs. “A review of deposits covered under insurance protection among large banking groups other than payment banks indicates that RRBs represent the highest share of around 84%, followed by local banks (80.1%), cooperative banks (69.4%), State Bank of India (59.1%), public sector banks (54.6%), small financial banks (44.5%), private sector banks ( 39.6%) and foreign banks (6.8%), respectively, ”says the annual report.
Earlier this week, the DICGC said it would pay depositors at 21 insured banks facing withdrawal restrictions an amount equivalent to overdue deposits up to a maximum of Rs 5 lakh within 90 days. Complaints will be settled in accordance with article 18A of the DICGC law (amendment). Instructions were given to these banks to submit claims within 45 days after obtaining the willingness of depositors to claim deposit insurance, the DICGC said.
In recent years, some commentators have argued for a shift to a risk-based premium payment scheme for banks. This means that a better rated bank will have to pay less as a premium on its deposits and vice versa. Indeed, Article 15 (1) of the DICGC (Amendment) Act stipulates that the DICGC may, having regard to the financial situation of a bank and with the prior approval of the Reserve Bank of India, increase the limit of premium of 15 paise per year for each Rs 100 of the total amount of its deposits. All banks currently pay a fixed amount of 12 paise for every Rs100 of deposits.
Industry experts have said it is only fair that clients of large commercial banks help cover the costs of protecting depositors at smaller banks.
“Cooperative banks were created with the specific aim of financial inclusion for segments of the population that traditional banks tend to exclude. So there is nothing wrong with letting large bank clients support those in weaker sections, ”a legal expert said on condition of anonymity.