At a seminar held recently at Nehru Science Centre, Worli (Mumbai), I asked Anil Kakodkar (an...
Moneylife offers its readers a unique service—helping redress grievances on a best-effort basis....
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%.