"The apex bank may even change the name of DICGC, reverting back to its erstwhile name of `Deposit Insurance Corporation'," a senior DICGC official said.

However, DICGC's deposit guarantee is still mandatory for all commercial banks and the facility is also extended to cover deposits mobilised by cooperative banks conditional to the state governments' approval.

DICGC sources said that regional rural banks (RRBs) and urban cooperative banks (UCBs)--which continue to be covered by the corporation's loan guarantee cover, particularly for the small loans extended by them--may follow the banks' example and opt out of the cover. "The RRBs andUCBs have started to opt out from the cover," the DICGC official added.

Banking sources confirmed that none of the public sector banks is currently under the DICGC fold as far as small loans are concerned and added that this is consequent to the improved risk-management techniques being employed by banks, better infrastructure and more professional bank management.

Commercial banks are no longer willing to pay the premium for DICGC cover since they have developed the necessary risk-management expertise and, moreover, DICGC has not been able to settle many claims pending with it, sources said.

The lead was taken by the State Bank of India which opted out of the small loans cover in 1996-97. Other PSU banks quickly followed suit and Union Bank of India and Central Bank of India completed the list by walking out of the DICGC in March this year.

Consequent to opting out of the DICGC cover for small advances, the banks are required to make additional provisioning for their non-performing assets (NPAs) insmall loans mainly in the priority sector category. "Earlier, despite defaults in the small loans, banks were not required to classiify them as NPAs or make provisions for them since they were guaranteed by DICGC. This will not be applicable now," banking sources said.

Banking sources said that in the absence of DICGC, commercial banks might end up making additional provisions to the tune of around Rs 7,000 crore every fiscal.

DICGC has been offerring two kinds of guarantees to banks: the small loan guarantee scheme of 1971 and the Small Scale Industries (SSI) scheme of 1981. The entire authorised capital of DICGC is issued and subscribed by the Reserve Bank of India. Even though the banks have opted out of the credit scheme, they will continue to be under the deposit insurance cover as statutorily they cannot opt out of it.