Deposit insurance cover: How much additional premium banks need to pay for increased cover

Deposit insurance cover: How much additional premium banks need to pay for increased cover

New Delhi: The five-fold increase in deposit insurance cover will not result in a five-fold increase in premium for banks. The Reserve Bank of India (RBI) has increased the premium for increased cover on bank deposits by 20% to 12 paise from 10 paise for every Rs 100.

“The premium is something which we are considering. It will be increased from 10 paise to 12 paise per hundred rupees for the time being. So, the impact on the banks’ balance — it is not likely to be so much,” the Times of India quoted RBI deputy governor BP Kanungo as saying.

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This comes as a relief for banks as analysts had earlier estimated that the five-fold increase in the deposit insurance cover might increase bank’s cost by 25 basis points of their aggregate deposits. Given that total bank deposits are Rs 131 lakh crore, the increase in premium for one year will boost the deposit insurance fund by Rs 2,620 crore.

Kanungo said that the Deposit Insurance and Credit Guarantee Corporation (DICGC) pays out claims only at the time of liquidation of a bank. However, he added, there is also a scheme where the DICGC provides compensation under restructuring plans for reviving the bank. This is a big positive for stressed co-operative banks as it would be possible for the DICGC to fill in to make a takeover proposal viable.

Responding to a query on Punjab and Maharashtra Co-operative (PMC) Bank, RBI governor Shaktikanta Das Thursday said that the administrator and the advisory committee are having greater clarity with regard to the financial position of the bank and are working on their next course of action.

In 2018-19, the DICGC received total premium income of Rs 12,043 crore from banks. The deposit insurance fund amounted to Rs 93,750 crore in FY19. It insured deposits of Rs 33.70 lakh crore out of total deposits of Rs 120 lakh crore of 2,098 banks, the publication mentioned.

Source:- timesnownews

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