DICGC hikes deposit insurance premium

The Deposit Insurance and Credit Guarantee Corporation (DICGC) today decided to raise the deposit insurance premium to 10 paise per Rs100 from 5 paise per Rs.100 of assessable deposit annually.

The entire banking sector in the past has been requesting the regulator to consider linking insurance premium to the risk assessment of each bank. The central banks move to increase insurance premium has come as a disappointment, said bankers.

Reserve Bank of India (RBI) said the premium will be raised in a phases over two years. In the first phase, the premium rate would be increased to 8 paise from 5 paise per annum per Rs100 of assessable deposits for the financial year 2004-05.

In the second phase, the deposit insurance premium would be increased to 10 paise per annum per Rs.100 of assessable deposits from 8 paise. The second phase of increase in premium would be effective from the financial year 2005-06, said the RBI in a notification today.

"The insurance premium needs to be based on the risk assessment of each bank rather than applying a uniform rate to all banks," said G V Nageshwar Rao managing director IDBI Bank. DICGC should consider setting up a separate insurance fund for co-operative sector as the claim rate is high in this sector, Rao said.

"The DICGC money is usually used by co-operative banks which are closing down every other day," said a deputy general manager of a public sector bank. The regulator should try and answer this question as to why should good banks pay more for these weak banks he added.

"The regulator need to restructure the insurance premium charging model according to which it should consider charging insurance premium to the insured value of the deposit rather than the total deposit," said managing director of a private sector bank.