Deposit Insurance: For 19 Years, DICGC Never Even Asked for Inspection or Records from Any Insured Bank, Credit Institution
In over 19 years of its existence, the Deposit Insurance and Credit Guarantee Corp (DICGC) has never ever asked for inspection of any bank or financial institution insured with it, despite the fact that cooperative banks seem to fail at the rate of about one every month.
The DICGC revealed this in response to a Right to Information (RTI) Act. This means that DICGC has made no attempt to respond to red-flags about banks under stress and the processes they adopt, as is permitted under its regulations.
Section 35 & Section 36 of the DICGC Act, which interalia says the DICGC is empowered to have free access to the records of all insured banks and call for copies of all such records and the DICGC can request the RBI to cause inspection of the books and accounts or investigation of the affairs of the insured bank or credit institution.
DICGC collects insurance at the rate of 0.10 paise
on their overall deposits, although only Rs1 lakh per depositor is covered under its insurance. This practice itself has been questioned by the All India Bank Employees Association (AIBEA) in a recent letter to the finance minister
We had asked for copies of the communication that DICGC sent to Reserve Bank of India (RBI) for inspection of insured banks or credit institutions, between April 2000 to October 2019.
Responding to it, the Corporation says, "DICGC has not sent any request for inspection of insured banks or credit institutions to RBI."
This was in response to a query asking DICGC to share the names of insured banks or credit institutions, who were asked by DICGC to furnish records under Section 35 of the DICGC Act during April 2000 to October 2019.
"DICGC has not asked for any records of insured banks or credit institution under Section 35 of the DICGC Act during April 2000 to October 2019," it says in the reply.
As on 31 March 2019, the deposit insurance fund at DICGC is Rs97,350 crore, including a surplus of Rs87,890 crore. The claims settled by DICGC so far since 1962 are only Rs5,120 crore and that too for the cooperative banks.
Out of 2,098 banks covered by the DICGC, 1,941 banks are cooperative banks. Only these banks are facing problems of closure and liquidation and the deposits of these banks need to be covered by DICGC.
In FY18-19, commercial banks, including public sector banks (PSBs), paid a deposit insurance of Rs11,190 crore while cooperative banks paid Rs850 crore, taking the total premium paid to DICGC at Rs12,040 crore. During the same year, DICGC received claims worth Rs37 crore from cooperative banks. However, none of the claims was settled.
Across the country, all cooperative banks have deposits worth Rs8.49 lakh crore, out of which only deposits worth Rs3.77 lakh crore or 44% of the total deposits are covered under the DICGC scheme. At the same time, 19 PSBs have total deposits worth Rs72 lakh crore, out of which just 30% or Rs22 lakh crore, are covered under the deposit insurance scheme.
After the collapse of Palai Central Bank Ltd and Laxmi Bank Ltd, in 1960, the government introduced the Deposit Insurance Corporation Bill, 1961. The Bill was approved by the Parliament in December 1961. Accordingly, the Deposit Insurance Corporation Act came into being with effect from 1 January 1962.
Earlier, only commercial banks were covered by the Act. Later, cooperative banks, regional rural banks, primary agricultural societies were also brought under the coverage of deposit insurance.
However, over the years, only cooperative banks were found failing regularly due to dual regulation. The banking operations of cooperative banks (or rather credit societies) is governed by RBI, while overall functioning falls under the regulation of registrar of cooperative societies. Unfortunately, records show, neither RBI nor registrar of cooperative societies is able to fully regulate or control cooperative banks.
To begin with, the insurance cover against bank deposits was up to Rs1,500. In 1968, it was enhanced to Rs5,000, in 1970 to Rs10,000, in 1976 to Rs20,000, in 1980 to Rs30,000 and, in 1993, the cover was enhanced to Rs1 lakh, which continues till today.
Similarly, in the beginning, premium payable for the deposit insurance was at 0.05 paise per Rs100 per year. In 1971, it was revised to 0.04 paise. Later in 1963, it was increased to 0.05 paise, 0.08 paise in 2004 and to 0.10 paise in 2005.