The Reserve Bank of India (RBI) will review the working of the bank deposit insurance scheme, including its coverage to align it with international best practices. The revised scheme is likely to adopt risk-related premium charge. This had been recommended by the Jagdish Kapoor Committee a few years back.
The current status of deposit insurance must be reviewed in light of the experience with the scheme and revision in the rates due next year, said RBI deputy governor K J Udeshi. She was speaking on the sidelines of a one-day seminar organised by the Indian Banks' Association jointly with KPMG today.
Currently all banks pay a uniform premium charge of 8 paise on the total deposit value of the respective bank. As this is being upward revised to 10 paise from April 2005, IBA has made a representation that banks ought not to be paying the same premium rate, as this raises issues of subsidisation. The central bank had recently sent a circular to banks stating that the hike in premium charges was on account of the scene in cooperative banks.
Public sector banks see their premium cost subsidising cooperative banks, which have off late been in the news on account of a run on various banks.
"Instead of one size fits all, premium should be risk-related," said senior IBA officials. Cooperative banks have recently asked that the insurance coverage on deposits be raised to Rs 3 lakh, and that be offered at "concessional rates".
This was raised in a meeting of cooperative banks with the RBI governor Y V Reddy earlier this month, following the downfall of many cooperative banks in the recent past, thereby affecting customers.
When asked whether there could be a delinking in the methodology of collecting premium from banks, Udeshi said: "We are examining it in toto, and will take in account international practices."
Under the current scheme, every depositor of an insured bank is entitled to an insurance cover of Rs 1 lakh in the event of the banking entity going into liquidation or facing amalgamation. PSU banks are comfortable with the existing insurance coverage.
The deposit insurance scheme was introduced in 1962 to provide coverage for deposits of commercial banks, regional rural banks and cooperative banks.
Today Deposit Insurance and Credit Guarantee Corporation (DICGC) covers 90 commercial banks, 196 RRBs and 2,298 cooperative banks under the scheme.
