Commercial banks, including local area banks (LABs) and regional rural banks (RRBs), paid a total premium of Rs 16,341 crore in 2020-21, while co-operative banks paid Rs 1,176 crore.
Scheduled commercial banks account for over 93% of premium payments to the Deposit Insurance and Credit Guarantee Corporation (DICGC) in FY21, showed the corporation’s annual report for the year. This is even as a majority of bailouts by the DICGC were for co-operative banks.
Commercial banks, including local area banks (LABs) and regional rural banks (RRBs), paid a total premium of Rs 16,341 crore in 2020-21, while co-operative banks paid Rs 1,176 crore. However, the coverage of deposits by share is highest in the case of RRBs. “An examination of the covered deposits under insurance protection among major bank groups other than payment banks indicate that RRBs account for the highest share of around 84%, followed by local area banks (80.1%), co-operative banks (69.4%), State Bank of India (59.1%), public sector banks (54.6%), small finance banks (44.5%), private sector banks (39.6%) and foreign banks (6.8%), respectively,” the annual report said.
Earlier this week, the DICGC said it shall pay the depositors of 21 insured banks facing restrictions on withdrawal an amount equivalent to the deposits outstanding up to a maximum of Rs 5 lakh within 90 days. The claims shall be settled in terms of Section 18A of the DICGC (Amendment) Act. Instructions have been issued to these banks to submit the claims within 45 days after obtaining the willingness of depositors to claim deposit insurance, DICGC said.
In recent years, some commentators have argued in favour of moving to a risk-based premium payment regime for banks. This means that a better-rated bank will have to shell out less as premium on its deposits and vice-versa. Indeed, Section 15(1) of the DICGC (Amendment) Act states that the DICGC can, with regard to the financial position of a bank and with prior approval of the Reserve Bank of India, raise the premium limit of 15 paise per annum for every Rs 100 of the total amount of its deposits. All banks currently pay a flat 12 paise for every Rs 100 worth of deposits.
Industry experts said it is only fair that customers of larger commercial banks help cover the costs of protecting the depositors of smaller banks.
“The co-operative banks were set up with the specific purpose of financial inclusion for segments of the population that mainline banks tend to exclude. So there is nothing wrong in letting the customers of bigger banks support those from the weaker sections,” a legal expert said on condition of anonymity.