Subbarao says no need to increase deposit cover limit.
The Reserve Bank of India (RBI) said on Monday that there was no need to increase insurance cover on bank deposits, but suggested that the ambit of Deposit Insurance Credit Guarantee Corporation (DICGC), that provided the cover, should be widened.
“DICGC is presently working as a pay-box system. Going forward, we are examining the possibility of transforming it from a pay-box system to a system attending to all aspects of bank resolution,” RBI Governor D Subbarao said at a conference in Goa.
The laws governing the insurance corporation did not empower it to appoint a liquidator or manage the assets of a failed bank. But it could initiate steps to resolve the problems of a troubled bank through reconstruction or by way of merger with another bank. Of late, RBI Deputy Governor Usha Thorat said, DICGC and RBI were using the option to merge insolvent cooperative banks. “Such solutions have the potential to serve as the least-cost option for resolution of troubled banks in the co-operative sector, even within the existing legal framework,” she said at the conference.
To expand the RBI-promoted company’s role further, Subbarao said, sweeping reforms, including a thorough change in the DICGC Act, were required. At the same time, he pointed out that it might not be necessary to have a separate supervisory machinery in DICGC, independent of RBI.
At present, 90 per cent of deposit accounts are covered by DICGC, while in terms of amount, 60 per cent of bank deposits are covered. DICGC covers deposits of up to Rs 1 lakh. Following the global credit crisis and the collapse of several banks across the world, larger proportion of deposits have been brought under insurance cover. There have also been demand in India to increase the cover beyond the Rs 1 lakh-limit. Several urban co-operative banks are at present not covered under this scheme.
In his address at the conference on funding of deposit insurance systems, Subbarao said, “The need for any special measures pertaining to deposit insurance did not arise. However, in line with the global trend, there was also some demand here to increase the deposit cover. If one looks even at broad data, it becomes quite clear that this demand has no persuasive force.”
“The cost-benefit calculus was not in favour of enhancing the deposit cover,” he added.
Subbarao, however, said DICGC should ensure that claims were settled within a few days of liquidation of a bank, instead of the process taking months. For this, he called upon the insurer to set up of a computerised depositors’ data base that covered 85,000 branches across the country.
Besides, to broad base DICGC’s mandate, there was a need for sweeping reforms, including changes to law governing the sector, RBI said.
