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According to the Deposit Insurance and Credit Guarantee Corporation, fully-protected accounts, where the deposit amount does not exceed Rs1 lakh, made up an astonishing 89% of the total number of accounts. Around 88% of the premium money comes from private and public banks—the beneficiaries of the insurance pool are co-operative banks
The Deposit Insurance and Credit Guarantee Corporation (DICGC), an entity fully owned and regulated by the RBI (Reserve Bank of India), collects insurance payment from banks to guarantee deposits up to Rs1 lakh per accountholder.
But according to the DICGC website, fully-protected accounts, where the deposit does not exceed Rs1 lakh, made up an astonishing 89% of the total number of accounts. And this figure hasn't changed much since 1990. Nearly 90% of the accounts had deposits below Rs1 lakh ever since. However, the remaining 10% of the accounts contribute to nearly 46% of the cash value of total assessable deposits, and are not fully-protected accounts.
In the case of foreign banks and private banks, the percentage of insured deposits to assessable deposits is considerably low, as most accountholders have deposits above Rs1 lakh.
In the light of these figures, it is indeed surprising that the Damodaran Committee report on improving banking customer services strangely suggests that deposit insurance for banks should be raised from Rs1 lakh to Rs5 lakh and that the government must also consider insuring the entire deposit.
This would just benefit the cooperative banks and, of course, DICGC, which would earn a huge growth in premium collected as the insured amount would increase.
On 9th August (Maximum insurance claims are paid out to depositors of failed co-operative banks; still Damodaran panel wants to collect higher premium from all ), Moneylife carried an article which highlighted that the major claim payouts of the DICGC are being made to badly-run and politically-influenced co-operative banks which in many cases, get liquidated.
Out of the 2,249 banks covered, a whopping 2,080 are co-operative banks. However, this does not mean that co-operative banks are the highest contributors to the premium collected.
Banks have to pay an insurance premium up to a maximum of Rs0.15 per Rs100 of insured deposits to DICGC every year to avail of the deposit insurance cover. For the year 2009-10, the insured deposits of the approximately 2,000 co-operative banks were just 8% of the total insured deposits of all banks. The insured deposits of commercial banks (private, foreign and public sector lenders) account for a total of 88% of the total deposits.Therefore, on doing the math, approximately 88% of the premium money comes from commercial banks—the beneficiaries of which are the co-operative banks.
On going through the break-up of the category of commercial banks, it can be seen that public sector banks like Punjab National Bank, Bank of India, Allahabad Bank etc., contribute the most to the insured deposit pool which is 53% of the total deposits. SBI (State Bank of India) and its group entities contribute the second most with 26% of the total insured deposits. Private banks and foreign banks together contribute 10%.
Without the SEBI top team to bat for it, NSE is quickly compromising on a variety of court battles
After three years of aggressive high-handedness, the National Stock Exchange (NSE), which has a virtual monopoly over India's capital markets, filed consent terms that closed a slew of lawsuits.
While the media has reported the end of the war, two important facts have escaped public attention. First, the NSE has also pushed to close a 2009 case filed by A Sebastin, a former NSE employee, whom the bourse had humiliated with a public notice, mainly because he had joined the rival MCX. Mr Sebastin had resigned from NSE in October 2008.
The NSE had chosen to deny a formal resignation and handover by Mr Sebastin and issued him a termination letter instead. It withheld his dues, including his provident fund and gratuity and further humiliated him by publishing his photograph in various newspapers to falsely suggest moral turpitude on his part. Worse, the NSE sought to quash Mr Sebastin's case, all the way to the Supreme Court, but was defeated at all levels. The case was referred back to the labour court for detailed hearing after NSE failed to quash it at the High Court and Supreme Court. The case had the potential of personally embarrassing NSE Managing Director Ravi Narain and his deputy Chitra Ramakrishna.
Our sources tell us that a crucial part of the deal with MCX was a request to persuade Mr Sebastin to drop the case without embarrassing senior NSE officials in court. The NSE in turn agreed to withdraw its wrong termination letter and to pay all of Mr Sebastin's dues which, in 2008, had added up to Rs32.50 lakh. The professionally-run exchange suffixed by the word 'National' spent considerably more in humiliating Mr Sebastin and in defending its action in court.
Interestingly, part of the agreement with the MCX Group and Mr Sebastin is that they will not speak to the media. As a result, neither NSE nor MCX was willing to speak on the issue. Mr Sebastin, who has been transferred to Chennai as the business development head of MCX, also did not want to go into details other than confirming the fact of an agreement signed with NSE. He also did not want to discuss why he did not press for an apology from the NSE for defaming him when it was the main reason why he dragged the exchange to court. Our sources say that Mr Sebastin may not have had a choice, because having him drop the cases against Mr Narain and Ms Ramakrishna were key to the consent terms filed with MCX-FT group on the broker front-office software and other matters. In effect, Mr Sebastin was "persuaded" to accept a settlement that merely paid his dues even though he was on a very strong wicket after the Bombay High Court passed strictures against the NSE officials.
A top source connected with the NSE told us, "I hope this works. Everyone concerned will need to stick to the commitments made. Equally they should not be tempted to go to the press." However, details of some aspects of the deal were already in the newspapers by then.
The real question is, why was the rich and powerful NSE, which for three years had dragged every real and imagined challenge to its supremacy to court, in such a hurry to close and bury multiple litigations?
One reason could be plain prudence. NSE couldn't have risked embarrassing losses in any more lawsuits after several reverses. It had lost the fight over being subject to the Right to Information (RTI) Act before the Central Information Commission and the Delhi High Court. It has now appealed to the Divisional bench. It lost to the forex derivatives bourse, MCX-SX, on the predatory pricing issue filed before the Competition Commission of India, which has imposed a Rs55.50 crore penalty on the NSE after finding it guilty of abusing its dominant market position. It has already faced several reverses and strictures in the case filed by Mr Sebastin over his wrongful termination and humiliation. The Bombay High Court case filed by Financial Technologies after NSE red-flagged its broker-trading software (ODIN) with an 80% market share was also looking shaky for NSE, say law experts.
But NSE had suffered many of these reverses many months ago. What caused the haughty and bullying exchange to compromise? Small fact: there is a new chief at the Securities and Exchange Board of India (SEBI). Under the former chairman CB Bhave, SEBI had chosen to abdicate its responsibility of deciding all these issues and allowed MCX, Financial Technologies and Mr Sebastin to seek civil and criminal remedies. With Bhave and his buddy-group of two whole time directors (KM Abraham and MS Sahoo) and key Executive Directors heading the legal department and Secondary Markets (JN Gupta) in charge of the regulatory body, the NSE had nothing to worry about. But SEBI has a new chairman now. The change in regime at SEBI means that this support is no longer assured and the NSE has reacted swiftly, by quickly closing all cases. Here again, its monopoly status was a major advantage. After all, the other party to the suit was only battling it out in court to stay in business or, as in the case of Mr Sebastin, an employee fighting for his honour and financial dues.
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