Even as the finance minister has announced plans to increase deposit insurance and bring in a Bill to re-introduce the ‘bail-in’ clause, the All India Bank Employees' Association (AIBEA) has demanded scrapping of such insurance cover for public sector bank (PSB) deposits.
CH Venkatachalam, general secretary of AIBEA, in a letter to finance minister Nirmala Sitharaman, says, "Year after year, public sector banks (PSBs) and all commercial banks are required to pay huge premium to Deposit Insurance and Credit Guarantee Corp (DICGC) but the claim ratio is nil because there is no possibility of these bank being liquidated and making any claims for the insured amount. Also in view of section of 45 of Banking Regulations Act, PSBs and commercial banks should be exempted from the purview of deposit insurance scheme."
According to AIBEA, after an amendment in 1960 in the Banking Regulations Act, not a single commercial bank has been liquidated or closed. PSBs also enjoy the sovereign guarantee of the government and there is no question or possibility or eventuality of any commercial bank getting closed down or liquidated, Mr Venkatachalam added.
As on 31 March 2019, the deposit insurance fund at DICGC (Deposit Insurance and Credit Guarantee Corporation) is Rs97,350 crore, including a surplus of Rs87,890 crore. The claims settled by DICGC so far since 1962 is 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. Even in the case of these banks, only to extent of deposits covered by the insurance cover, premium should be charged and not on the total assessable deposits which is much higher," Mr Venkatachalam says.
As per data provided by AIBEA, in FY18-19, commercial banks, including 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.
The bank employee union also highlights the gap between premium paid and insurance coverage. It says, "While the entire amount of deposit is taken as assessable deposit and premium is collected on the total deposits, the scheme covers insurance only up to Rs1 lakh. Thus Banks are paying premium even for the deposits which are not insured. For example, premium paid for FY2018-19 was on deposits worth Rs120 lakh crore but deposits covered by insurance were only for Rs33.70 lakh crore or just 28% of the total deposits."
AIBEA says, there are about 271 crore bank accounts, which are covered by insurance, out of which only 200 crore or 92% accounts are fully protected by DICGC. These 2 billion fully protected accounts are worth Rs120 lakh crore, but only 28% deposits that are worth Rs33.70 crore are covered under the deposit insurance scheme.
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% of Rs22 lakh crore, are covered under the deposit insurance scheme, AIBEA added.
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.
To begin with, the insurance cover against bank deposits were 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.
"We submit to the government that the deposits of public sector banks and commercial banks which are covered by Section 45 of the Banking Regulations Act be exempted from the coverage of DICGC cover. In addition for cooperative banks, the premium should be charged only on the deposit amount insured and not on the total assessable deposits of the Bank," Mr Venkatachalam from AIBEA added.