Help us to help you

Moneylife offers its readers a unique service—helping redress grievances on a best-effort basis....

Premium Content
Monthly Digital Access

Subscribe

Already A Subscriber?
Login
Yearly Digital+Print Access

Subscribe

Moneylife Magazine Subscriber or MSSN member?
Login

Yearly Subscriber Login

Enter the mail id that you want to use & click on Go. We will send you a link to your email for verficiation
Just around 10% of total accounts have deposits above Rs1lakh, says DICGC

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%.

User

COMMENTS

Vaidya

5 years ago

What a way to collect statistics. First make a rule that any student is allowed to enter the gardern, but those below the age of 12 will not be allowed to play in the garden, and then justify the rule saying that most of them are above the age of 12. The simple reason is most people, including myself, make sure that the deposits in any bank are below Rs.1 lac, unless they have no alternative. I make sure that any of my deposits, outside the government banks are below Rs.1 lac. My income is below taxable limit. I also need to make sure that my interest earned in any bank does not exceed Rs.10,000/-. No wonder most of the deposits are below Rs.1 lac. Change the rules of TDS, to Rs.50,000/- ( ideally TDS on interest should be removed ) and give the insurance upto Rs.10 lac, which most people have after retirement. And recast the figures, if they are to be used for any decision.

REPLY

R Nandy

In Reply to Vaidya 5 years ago

Very good point.I also feel TDS is the main reason why most people split up their deposits below 1 Lac in different banks.The provision of 15h and15g is there but it is anyones guess whether it will finally be updated in the bank database and no TDS applied. Thirdly there is also the risk of bank faud.In these days of phising,visiting,skimming etc,we can't risk a big deposit in any bank considering how irresponsible the bank staff is. Deposits can easily be broken online if linked to a savings account. Locked deposits like SCSC,PO MIS are better options in this regard

Nagesh KiniFCA

5 years ago

When the GOI as a matter of policy decided not to let any commercial bank like GTB go under and bring in merger with stronger banks the need for Deposit Insurance is redundant and can be done away with. There ought to be 'sovereign guarantee of the RBI or GOI' instead protecting the interest of the depositors.
The entire co-operative banking sector should be brought under the regulatory supervision of the Banking Regulator. It should, for banking purposes be totally delinked from State Co-operative Dept. that neither has the capacity or capability to monitor them thus putting at risk deposits of small investors and co-operative housing societies.

R Nandy

5 years ago

The insurance premium come to Rs150 per 1 lac of deposit which is a meager amount for the bank as they earn a good margin from deposits.In fact the complete deposit amount should be insured as the banks earn proportionately more money on larger deposits and can easily pay the premium.I think Damodaran committee has made the correct and fair recommendation in this regard.

kaushik

5 years ago

it is hightime DICGC/RBI must think insurance coverage of banks deposit from present Rs. 1/-lac to Rs. 10/-lacs, itm will boost the faith of indians in the indian banking system as of inflation has gone up the upward revision in insurance coverage is a must and indian bank depositors will welcome this step

Regime change at SEBI forces NSE to compromise

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. 

This was the ad published by NSE in various business newspapers about A Sebastin.

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.

You may also want to read...

User

COMMENTS

Nagesh KiniFCA

5 years ago

Just because they have the funds, the public funds at that, NSE and others should be questioned for pursuing frivilous and vindictive persecution of employees.Whether the parties like it or not, thru RTI such litigations that resulting in waste of public funds to harass employees need to be put an end to, sooner the better.

We are listening!

Solve the equation and enter in the Captcha field.
  Loading...
Close

To continue


Please
Sign Up or Sign In
with

Email
Close

To continue


Please
Sign Up or Sign In
with

Email

BUY NOW

The Scam
24 Year Of The Scam: The Perennial Bestseller, reads like a Thriller!
Moneylife Magazine
Fiercely independent and pro-consumer information on personal finance
Stockletters in 3 Flavours
Outstanding research that beats mutual funds year after year
MAS: Complete Online Financial Advisory
(Includes Moneylife Magazine and Lion Stockletter)